The British luxury marque reports the underfloor diesel fuel cooler in affected vehicles may leak, which could cause a fuel odour to enter the cabin.
Jaguar says, over time, drivers may also notice an increase in fuel consumption and puddles of liquid underneath the car when the vehicle is stationary.
If the condition occurs, a pool of fuel and an ignition source could lead to a fire, while leaked fuel on the road surface presents a skid hazard to other road users.
Affected XE models were produced from 6 October 2015 to 30 June 2015. The VIN range for these vehicles is SAJAB4C1XGA900002 to SAJAB4CN0GA911884.
Owners of the recalled sedans will be contacted directly by Jaguar Land Rover (JLR) Australia and are advised to present their XE to their local Jaguar dealer who will replace the fuel cooler assembly with a revised component free of charge.