Police and customs officers raided Inspector Alan Magarry's home north of Brisbane last week, the Courier Mail reports.
The raid uncovered several items suspected to be Australian Defence Force equipment including an automatic Steyr rifle, a Kevlar helmet and boxes of .223 ammunition.
Operatives included a team from the ADF's Explosive Ordnance Demolition unit.
"There were soldiers in camouflage gear and a couple of cars up the driveway," one neighbour was quoted as saying.
"A paddy wagon was out the front and a girl was bringing stuff out of the house."
The operation was launched after Customs officials intercepted four separate parcels from the US that allegedly contained machine gun parts addressed to Inspector Magarry's home.
The intercepted kits are reportedly used for making machine guns operable.
The report said Inspector Magarry had run an armoury business out of the home.
He was appointed chief of the Water Police earlier this year following a celebrated career spanning nearly three decades.
Inspector Magarry is currently on recreational leave and assisting the Ethical Standards Command with their enquiries, police said.
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