'When the security agencies are running foreign policy, the nutters are in charge,' he said.
"They've lost their strategic bearings, these organisations."
Mr Keating, who was Labor prime minister between 1991 and 1996, has called for spy chiefs to be sacked in a bid to improve relations with China, saying he would 'clean them out'.The politician said problems began to mount in the security council after former journalist John Garnaut helped to write a classified report for ASIO on Chinese influence in Australia.
Mr. Keatings remarks come at 15:32
'Once that Garnaut guy came back from China and [Malcolm] Turnbull gave him the ticket to go and hop into the security agencies, they've all gone berko ever since,' he said.
Paul Keating said Australia's security agencies went 'berko' after former journalist John Garnaut helped write a classified ASIO report on China
'When you have got the ASIO chief knocking on MPs' doors, you know something's wrong.'
Mr Keating said any incumbent government needed to rethink Australia's relationship with China.
'You know, China, whatever you think, China is a great state,' he said.
'It's always been a great state and now has the second-largest economy, soon the largest economy in the world.
'If we have a foreign policy that does not take that into account, we are fools.'
Following the inflammatory comments, Prime Minister Scott Morrison called on Bill Shorten to denounce Mr Keating's remarks, noting the agencies had prevented 15 terror attacks in Australia.
'For what the Labor Party calls a Labor legend to go out there and attack the credibility of our security agencies that have been saving lives in this country, I think is very disappointing,' the PM told reporters in Nowra on Monday.
'I think that should be disowned and I think the leader of the Labor Party, Bill Shorten, should be having something to say about that in denouncing what Paul Keating had to say.'

'People love Paul Keating for his colourful language,' she told ABC Radio National on Monday.
'We have a very good relationship with Australia's security agencies.'
She said Mr Keating did not run Labor policy, noting the opposition valued regular briefings it receives from agencies.
'Paul Keating is right to say that China is an absolutely vital economic partner for Australia and we have to have a good relationship with China,' Ms Plibersek said.
Labor's Deputy Leader said the party enjoyed a 'very good' relationship with security agencies, but said Mr Keating was right to highlight China's importance




Comment: Members of Australia's government pushed back on Mr. Keatings comments: Mr. Keating is speaking sense. China, along with Russia, is poised to reshape the world's economy. Maintaining an adversarial relationship with China (at the behest of the US) is the worst thing they could do for themselves as a country.