On Monday, Israel's Foreign Minister Gideon Sa'ar said the move came in response to the nation's recognition of a Palestinian state and for refusing entry to Israeli figures.
He also instructed the Israeli Embassy in Canberra to carefully examine any official Australian visa application for entry into Israel.
Foreign Minister Penny Wong said the government had a right to safeguard communities and protect "all Australians from hate and harm".
"At a time when dialogue and diplomacy are needed more than ever, the Netanyahu government is isolating Israel and undermining international efforts towards peace and a two-state solution," Senator Wong said in an early morning statement on Tuesday.
"This is an unjustified reaction, following Australia's decision to recognise Palestine."
 She said Australia would continue to work with partners to contribute to "international momentum to a two-state solution, a ceasefire in Gaza and release of the hostages".
The Australian government will always take decisive action against anti-Semitism, she said.
The decision, at a time when more diplomacy and dialogue was needed between the two nations, was disappointing, Finance Minister Katy Gallagher said.
It was important that Australia had representatives on the ground in Palestine, she told ABC Radio National.
"These are important positions in terms of us understanding what's going on, also in supporting the co-ordination of aid and support on the ground."
Earlier this month, Prime Minister Anthony Albanese confirmed Australia's intention to recognise Palestinian statehood at the United Nations General Assembly meeting in September.
An estimated 25,000 people marched across the Sydney Harbour Bridge to protest the war in Gaza at the start of the month.
Mr Sa'ar expressed his anger on social media on Monday as he announced the visa cancellations.
"This follows Australia's decisions to recognise a "Palestinian state" and against the backdrop of Australia's unjustified refusal to grant visas to a number of Israeli figures, including former Minister Ayelet Shaked and the Chairman of the Knesset's Constitution, Law and Justice Committee, MK Simcha Rothman," Mr Sa'ar posted on social media platform X on Monday.
"While anti-Semitism is raging in Australia, including manifestations of violence against Jews and Jewish institutions, the Australian government is choosing to fuel it by false accusations, as if the visit of Israeli figures will disrupt public order and harm Australia's Muslim population. It is shameful and unacceptable!"
Mr Sa'ar's post comes after it was revealed on Monday that Australia denied far-right Israeli politician Simcha Rothman from entering the country for a speaking tour after provocative comments, including branding children in Gaza as enemies.
Opposition finance spokesman James Paterson said Australia's relationship with Israel was "the worst it has ever been".
Australia has also denied entry to former Israeli minister Ayelet Shaked, based on anti-Palestinian comments, and Israeli advocate Hillel Fuld.
Canberra has further imposed sanctions on two far-right Israeli ministers, including travel bans.
The federal government has denied entry to people who have a history of anti-Semitism, including rapper Kanye West after he released a song praising Hitler, as well as Lebanese pro-Hezbollah influencer Hussain Makke.
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