Facebook risks weakening its standing if it follows through on a threat to stop Australian users sharing news, the head of the competition watchdog says.
Under a landmark plan proposed by the Australian Competition and Consumer Commission, the social media giant would be forced to compensate media companies for publishing their stories.
The company earlier this month threatened to ban news on its own platform and on Instagram if the plan becomes law.
ACCC chairman Rod Sims said it would be a shame for democracy if Facebook didn't allow news to be shared.
"If it becomes known that you can never get news media on Facebook, what does that do to Facebook's standing? Will people go elsewhere?" he told an Australian Institute online seminar on Thursday.
"I think it will weaken Facebook."
The legislation is designed to ensure Facebook and Google fairly compensate news media companies for their work.
Google has raised concerns with the draft code, claiming people's personal data could be compromised and their access to free services inhibited.
Mr Sims firmly rebuffed the claims, saying the watchdog is "happily engaging" with Google.
He said tweaks to the legislation were possible but insisted the core principle of the code would not change.
"We're engaging with (Google) on all their issues and we'll make changes to address some of those issues, not all, but some," he said.
Mr Sims said the code is crucial to ensuring diverse media in Australia and would allow greater negotiating power for smaller companies.
"If this code was in place Buzzfeed would still have journalists in Australia," he said.
The ACCC is hoping to deliver its final advice to the federal government by early October.