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"It's believed the child, who was holidaying with his family, had been playing outside a house, when neighbours heard a commotion," RACQ LifeFlight Rescue said in a statement.
"They reportedly went to investigate and saw a dingo attacking the toddler."
The boy, accompanied by his mother, was flown to a hospital from Fraser Island off the eastern coast and is in stable condition.
The dingo is a protected species on Fraser Island and are a popular attraction for camping tourists. The island's dingo population is estimated to be around 200, with packs of up to 30 roaming the island, according to the Queensland Department of Environment and Science.
In 1980 baby Azaria Chamberlain disappeared from a tent in a camping ground in Australia's outback, with her mother claiming she was taken by a dingo. The baby's body was never found, creating a mystery that captivated Australians for years and was made into a book and a film with Meryl Streep and Sam Neill.
Azaria's mother Lindy was jailed for three years over her daughter's death before later being cleared. A court ruled in 2012 that a dingo killed Azaria.
Dingoes, introduced to Australia about 4,000 years ago, are protected in Queensland state's national parks, World Heritage areas, Aboriginal reserves, and the Australian Capital Territory. Elsewhere, they are a declared a pest species.
They hold a significant place in the spiritual and cultural practices of many Aboriginal and Torres Strait Islander communities.