Chief Executive Peter Coleman said he hopes to revive the talks when the spat subsides.
Woodside had been negotiating with China's national oil companies, including PetroChina Co, and second-tier companies to sell a "modest" stake in the linked Scarborough gas field and Pluto LNG Train 2 project, which would have included some gas sales.
"They advised us a couple of months ago that they were just not able to proceed at this point due to the relations between China and Australia," Coleman said.
"So we're a little frustrated and disappointed by that. But we're hopeful that things will improve and we'll be able to get them back to the table," he told Reuters in an interview.
Diplomatic relations with China, Australia's top trading partner, have deteriorated after Canberra called for an international inquiry into the source of the coronavirus.
The frayed ties have hit exports of Australian coal, barley, wine, timber and lobsters, but analysts have expected LNG would be immune as Australia is the biggest supplier of LNG to China.
"The restrictions, so far, do not appear to have affected Australian exports of LNG to China," research firm EnergyQuest said in a report on Thursday.
EnergyQuest estimates China imported 23.5 million tonnes of Australian LNG in the first 10 months of this year, in line with the first 10 months of last year.
Coleman said the diplomatic row had not hurt Woodside's existing partnerships with Chinese companies in Australia and Myanmar, where he said the relationship was "very good".
Woodside is also looking to sell down its recently enlarged stake in the Sangomar oil project in Senegal.
China's CNOOC has ties with Woodside's former partner in Senegal, FAR Ltd, for projects in West Africa. Coleman said he did not see the diplomatic spat stopping CNOOC from bidding for a stake in Sangomar.
"No. The Australia-China thing is very specific to investments in Australia. It's not a general issue," Coleman said.
The collapse in Woodside's talks with the Chinese was first reported by the Australian Financial Review on Wednesday.
(Reporting by Sonali Paul; Editing by Christian Schmollinger and Michael Perry)
By Sonali Paul