Rafael Nadal continued his sensational run in the Australian Open, shedding just five games in romping to a straight sets win over Damir Dzumhur on Friday.

The Spanish world No.1 took just 1hr 50min to storm into the fourth round with a 6-1, 6-3, 6-1 demolition of the 28th seeded Bosnian on Margaret Court Arena.

Nadal, a losing finalist to Roger Federer last year in Melbourne, has lost only 21 games in his three victories to reach the round of 16 after coming into the year's opening Grand Slam with queries over the state of a knee injury.

He will take on Argentina's 24th seed Diego Schwartzman in Sunday's fourth round.

"When you win 6-1, 6-3, 6-1 in the third round, is always a great result," Nadal said.

"I needed hours of court, hours of practice, hours of playing sets with different players. That's what I did.

"I think I did a good preparation here. I feel I am playing well. That's all.

"Here I am. I am in the fourth round. That's because I am doing the right things. Let's see how far I can go."

The 16-time Grand Slam champion conceded just 18 unforced errors and only dropped his service once.

The win took the 31-year-old's Australian Open record to 54-11 as he chases his second Melbourne title after beating Federer in the 2009 final.

Nadal was ruthless against the Bosnian, breaking his serve seven times with blistering shot-making.

He breezed through the opening set with two breaks for the loss of just one game in 22 minutes.

He then broke Dzumhur in the opening game of the second and finished off the set with another break for a two sets lead.

Nadal continued to attack Dzumhur and broke him in the second and sixth games to wrap up his night.

Nadal said he would have to be at his best to get past Schwartzman, a quarter-finalist at last year's US Open.

"He's a great player. He had an amazing last year, and he's started again this year playing so well," Nadal said.

"He's won three matches here, playing at very high level. He's a very complete player. He's a player that if I don't play my best, probably I am not going to win. Tough one."

Nadal, who is gunning for a 17th major title, was hampered by a knee injury at the tail-end of the 2017 season.

It forced him to skip the lead-up Brisbane International this month, and he only had a one-match workout at the exhibition Kooyong Classic in Melbourne ahead of the Open.

Nadal needs to reach the quarter-finals to be certain of retaining his world number one ranking after the Australian Open, with Federer breathing down his neck.