Australian Foreign Minister Julie Bishop said the deal is "an informal arrangement" with an emphasis on tracking Australians who go to Iraq to fight for ISIS.
But one Australian lawmaker reportedly described the move as "dancing with the devil."
Over the weekend, Bishop became the first Australian government minister to visit Iran in 12 years, meeting with President Hassan Rouhani. The intelligence-sharing deal was announced in an interview released Monday
that Bishop gave to the Australian Broadcasting Corporation while in Tehran.
"During my discussions with the national leadership here, it was agreed that we could share intelligence, particularly on the foreign terrorist fighters from Australia who are taking part in this conflict in Iraq," she said. The Iranians "were very agreeable to share that information with us," she added.
Iran 'in places that we are not'
Like many Western nations, Australia is grappling with the problem of citizens who are choosing to travel to Iraq and Syria to join ISIS, which calls itself the Islamic State.
Australia is part of the U.S.-led coalition that's carrying out airstrikes against ISIS.
During the fight against the Sunni extremist group, the coalition has found its interests aligned at times with those of Iran, a Shiite-majority nation that has strong ties with the Iraqi government.
Iran-backed Shiite militias played an important role
in the recent battle to take the Iraqi city of Tikrit from ISIS jihadists.
"Iran has a long standing relationship with Iraq, and as you point out, they have a very strong military presence there. They also have an influence over the Shia militia who are operating within Iraq," she said. "So they are in Iraq, in places that we are not. They also have a very sophisticated intelligence network and they have a lot of information that they've been gathering."
'Shudders down the spine'
Bishop, who left Tehran on Sunday, declined to give details of the agreement with Iran.
"Obviously, if Iran has information that will be of interest to us, and if we have information that would be of interest to them, in pursuing our common purpose in defeating Daesh, then that's an appropriate exchange," she said, using an alternative name for ISIS.
But Andrew Wilkie, an independent Australian member of parliament, criticized the plan.
"The announcement by the Foreign Minister that Australia is entering into a security arrangement with the regime in Tehran really should send shudders down the spine of every Australian," he said, according to the Australian Broadcasting Corporation
"When you start dancing with the devil in a place like Tehran, then we run the risk of becoming almost as bad as those who we dance with," Wilkie told reporters.