The recall would cover almost all the cars, utilities and SUVs sold in Australia by the Chinese brands Great Wall and Chery.
Chinese manufacturers have ceased production of the vehicles – which were found to use asbestos gaskets – and are examining the use of alternative components.
The Australian Competition and Consumer Commission says it will confirm in the coming days whether it will issue a recall. Asbestos was long used in car production but has been banned in Australia since 2003.
"We are discussing a possible recall of some Great Wall and Chery vehicles but at this stage there is no recall in place," said a spokesman for the consumer watchdog. "We anticipate the situation will be clarified in coming days."
The importer of the Chinese brands in Australia, Ateco Automotive, conducted its own health and safety checks on the vehicles and reportedly found "negligible" risks for drivers, passengers and mechanics. It said there was a relatively minor safety risk of breathing in asbestos fibres, mostly during repairs or servicing at a dealership.
The saga marks a further setback for the Chinese car industry whose vehicles have prompted a string of safety and quality concerns.
According to Fairfax newspapers, the Australian importer uncovered the presence of asbestos in various gaskets and notified Great Wall and Chery but was given assurances that asbestos was not used in the production process. Asbestos was later found in as many as eight gaskets in each vehicle.
Great Wall has proven increasingly popular in Australia since it became the first Chinese brand to be imported in 2009. About 21,500 of the vehicles that could be recalled are Great Wall cars and it is now the seventeenth biggest brand of more than 50 on sale in Australia.
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