Foreign Minister Penny Wong warned any escalation in the conflict would create a greater human cost and cause further hits to the global economy.
"It is disappointing that the Islamabad talks between the United States and Iran have ended without agreement," Senator Wong said in a statement on Sunday.
"The priority now must be to continue the ceasefire and return to negotiations.
"We continue to want to see a swift resolution to this conflict."
Following 21 hours of discussions, US Vice-President JD Vance announced on Sunday, Australian time, that his negotiating team was leaving Pakistan without having struck a deal for a permanent ceasefire.
He said Iran had not accepted US terms, including a commitment to not build nuclear weapons, while Iranian state media said the talks failed due to America's "unreasonable demands".
The Strait of Hormuz, through which about 20 per cent of the world's oil supplies travel, will continue to be restricted by Iran until the US agrees to a "reasonable deal", according to a report from Iran's Tasnim News Agency.
Australians have been warned the impacts of the strait's virtual closure would be felt long after its eventual reopening.
Agriculture Minister Catherine King earlier on Sunday noted the existing, temporary ceasefire was fragile.
"What we have to prepare for, as a country here, is that even if the strait opens tomorrow, there's a long tail to this," she said.
Iran's restriction of shipments through the strait has also led to shortages of other important materials, such as fertilisers.
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