Foreign Minister Penny Wong condemned the clip as "shocking and unacceptable" and called for the release of 11 Australians who were among the activists arrested after trying to break Israel's maritime blockade of Gaza.
In a clip posted to social media and captioned "Welcome to Israel", Itamar Ben-Gvir is shown hurling abuse at the activists while their hands were tied behind their backs and faces on the ground.
"They came with a lot of pride like great heroes. Now look at them. See how they look now. Not heroes, terror supporters," he says at one point, according to a translation by CNN.
More than 400 activists, including the 11 Australians, had been trying to reach Gaza by boat when they were intercepted and boarded by the Israeli Defence Forces off the coast of Turkey.
"The images we have seen posted by Israeli Minister Ben-Gvir - who Australia has sanctioned - are shocking and unacceptable," Senator Wong said on X.
"We condemn his actions and the degrading actions of Israeli authorities towards those detained."
Senator Wong said she had told the Department of Foreign Affairs to call in Israel's ambassador to Australia, Hillel Newman, to reinforce her message.
Dr Newman is expected to meet with departmental officials on Thursday.
Israel's Prime Minister Benjamin Netanyahu scolded Mr Ben-Gvir for his actions and said the activists would be deported as soon as possible.
"Israel has every right to prevent provocative flotillas of Hamas terrorist supporters from entering our territorial waters and reaching Gaza," Mr Netanyahu said in a statement.
"However, the way that Minister Ben Gvir dealt with the flotilla activists is not in line with Israel's values and norms."
Israel's foreign minister Gideon Sa'ar also condemned his colleague, accusing him of undoing the work of the IDF and foreign ministry staff.
"You knowingly caused harm to our State in this disgraceful display - and not for the first time," he said.
"No, you are not the face of Israel."
Other countries, including Italy, the UK, Turkey, Greece and the US, have also criticised Mr Ben-Gvir.
American ambassador to Israel Mike Huckabee described Mr Ben-Gvir's actions as "despicable" and said he "betrayed (the) dignity of his nation".
