Trade Minister Dan Tehan confirmed on Thursday both countries had agreed to undertake "preparatory discussions and domestic consultations" with a view to starting formal trade negotiations.

Sealing the deal - known as a Comprehensive Economic Partnership Agreement - would be a first for Australia in the Middle East.

In 2020, two-way trade between Australia and the UAE was worth $6.8 billion and two-way investment was $16 billion.

"The UAE is Australia's gateway to the Middle East and presents an opportunity for greater trade diversification," Mr Tehan said.

"Australia has more than 300 key businesses operating in the UAE, including in building, construction, financial services, agricultural supplies and training services and a CEPA would create more opportunities for Australian businesses and workers."

The government has been exploring a broader deal with the Gulf Cooperation Council for some years.

Australian Associated Press