The 33-year-old Wallaby, whose transfer to Scottish side Edinburgh remains in the balance, is among the most experienced players at the tournament having made a staggering 102 Test appearances since making his debut as a replacement against Wales in Sydney 11 years ago. Phillips believes the veteran fly-half remains a major challenge for the home team.
He said: "Larkham is a real threat to any defence. His decision making is always spot on and he just seems to get better with age. He's not only a danger by himself, but he brings the best out of the guys around him and I'm sure closing him down will be key to any success against Australia.
"However there is always a danger of focussing too much on one person. What marks this Australia team is the quality of players across the park and that offers a real challenge to team's when they are preparing their defensive strategies. Teams are also getting wise to the fact that defences will look at certain players so can use those individuals as decoy runners to open space for others.
"We just have to look at the they whole style and patterns that Australia like to employ, but we don't fear Australia, we are excited by the challenge. They will respect us and know that we were very unlucky not to beat them in Sydney in May."
The Welsh dragons will have rare home advantage for the tie at Cardiff's Millennium Stadium, where Australia lifted the Rugby World Cup trophy in 1999, following a reciprocal agreement between the Welsh and French rugby unions dating back that year. Wales hosted the tournament but allowed France to stage a series of pool games in return, it is believed, for their backing in getting the finals.
Phillips said: "We would be happy to stay here but there's the bonus of familiarity back home. I don't think it will bring an added pressure by playing in Cardiff. Obviously there is an advantage of playing at home. However I'm not sure if France would agree with me at this moment given what happened on the opening night of the Rugby World Cup.
"It is certainly a chance to spend some time with our families. It's a long tournament and sometimes the time you spend away from each other as a squad is just as important as the time together."
Wales will announce their team on Thursday when they return to their head-quarters in the Vale of Glamorgan and have all but second-row Ian Evans available for selection after emerging unscathed from their bruising 42-17 win over Canada in the opening game.