A report in Fairfax broadsheets says Australian troops could be shifted to danger areas around the cities after handing over control in Uruzgan province to their Afghan counterparts.
Three Australian soldiers were shot dead and seven more wounded in Kandahar recently when a rogue Afghan National Army soldier turned his weapon on them after a routine parade.
Speaking on ABC News Breakfast this morning, Mr Smith said Australian troops could continue to play a range of roles, from continuing artillery and officer training to providing advice, after the scheduled drawdown in 2014.
He said he was was also considering leaving special forces and troops to provide development assistance in the country.
"We are looking at whether there's a possibility for us to leave special forces behind in some role," he said.
"If we do do that, special forces would not be based in Uruzgun; they'd be based out of Kandahar or Kabul, so out of a regional centre."
But he stressed that no final decision had been taken.
On Sunday, Prime Minister Julia Gillard paid a flying visit to Afghanistan, where she opened a new Australian embassy building in the capital Kabul which she said was indicative of Australia's long-term commitment to the country.
"We came to Afghanistan and we have found some tremendous days of sorrow, but we have also found a great friendship," she said.
"We do intend to stay engaged here with you, in a spirit of friendship, for the long term."
Mr Smith also announced that $8 million had been put into a fund to help the families and children of soldiers killed in Afghanistan.
He said the contribution would enable the Commando Welfare Trust to begin capital raising so income from the fund can be used by the families to pay for children's education.
With 32 Australian soldiers killed in the war in Afghanistan, Mr Smith says the donation is the right thing to do.
"If you look at our fatalities - 32 - almost half of those are from our special forces, from SAS and commandoes and associated regiments," he said.
"It's a terrible sacrifice and not only should governments help but historically we've seen private Australians [help], whether it's through legacy or private trust. And it's a very good thing to support."
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