The Liberals' how-to-vote cards favour One Nation's David Farley over community independent candidate Michelle Milthorpe for the Farrer by-election on May 9.
Former Victorian Liberal deputy director turned pollster Tony Barry said the party was in a fight for survival and compared its stewardship to driving a "car with no brakes".
"There are no perfect solutions, only imperfect choices," he told AAP.
"It's clear that their strategy is to try and get to second in the national polls and if they can get over the top of One Nation then they can try to build a coalition of constituencies to try to be competitive with Labor again."
Unable to beat Labor from third position, Mr Barry said the party had to treat their base like swing voters at risk of alienating the actual swing voting block.
"If they do get over the top of One Nation the risk is that the brand damage sustained in getting there means they can't get their primary vote into a contestable position with Labor," the Redbridge director said.
"It's a very complicated path back to competitiveness."
Former prime minister John Howard once famously said One Nation should be placed last on every Liberal Party how-to-vote card around Australia.
Mr Howard has since tempered his 2001 edict, declaring preferences with One Nation should be considered on a case-by-case and seat-by-seat basis.
Nonetheless, fellow former Liberal prime minister Malcolm Turnbull described the decision to preference One Nation third in Farrer as a "retrograde move".
"That would have been inconceivable during my time as prime minister, or indeed Tony Abbott's or John Howard's," he told a climate and energy panel on Monday.
Opposition Leader Angus Taylor defended One Nation as the "least worst option" in Farrer, aside from Nationals pick Brad Robertson.
"We've got ... a group of teals in this parliament that are trashing our energy system ... and we simply cannot endorse that," he told the ABC's Insiders program.
Mr Taylor singled out Iran as a "bad country" while selling his immigration policy, forcing party deputy and prominent moderate Jane Hume to clarify the country would not be subject to a blanket ban.
He criticised the booing of the Indigenous acknowledgement of Country at Anzac Day services but argued Welcome to Country ceremonies, a different cultural practice, had become "devalued by overuse".
Defence Industry Minister Pat Conroy accused Mr Taylor of being a "pale imitation of One Nation", while Deputy Prime Minister Richard Marles warned Australians would judge the Liberals on their preference ordering.
The Victorian Liberals have adopted the same preference strategy for Saturday's by-election in Nepean.
Liberal candidate Anthony Marsh has a fight on his hands to retain the state seat in a three-way contest with One Nation's Darren Hercus and community independent candidate Tracee Hutchison.
The Victorian Liberals plan to preference One Nation ahead of Labor as a default position for the state election in November, the Nine newspapers reported.
Victorian Opposition Leader Jess Wilson, a member of the party's state campaign strategy committee, categorically denied the preference strategy had been discussed.
"We're seven months out and, in most cases, there aren't candidates, there aren't policies and for some parties there isn't even a leader," she said.
Ms Wilson previously ruled out forming an "alliance" with One Nation for the state election, with polling showing one-fifth of Victorian voters back Pauline Hanson's populist party.
Harking back to a 1996 one-liner from Ms Hanson, Premier Jacinta Allan demanded a "please explain" from Ms Wilson and called for no more "weasel words".
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