Prime Minister Scott Morrison has slammed a "truly repugnant, deeply offensive" propaganda image shared by a senior Chinese official and demanded it be removed.
Zhao Lijian, a spokesman with China's foreign ministry, shared a doctored image of alleged Australian war crimes in Afghanistan on Monday.
The image purported to show a special forces soldier slitting the throat of an Afghan child with its head wrapped in an Australian flag, alongside the words: "Don't be afraid we are coming to bring you peace."
"Shocked by murder of Afghan civilians and prisoners by Australian soldiers," Zhao Lijian posted to Twitter.
"We strongly condemn such acts and call for holding them accountable."
In his strongest comments against the Chinese government since becoming prime minister, Mr Morrison said the falsified image was utterly outrageous.
"The Chinese government should be totally ashamed of this post. It diminishes them in the world's eyes," he told reporters in Canberra.
"Australia is seeking an apology from the ministry of foreign affairs, from the Chinese government, for this outrageous post. We are also seeking its removal immediately and have contacted Twitter."
Twitter added a content warning to the post as Australia lodged an official complaint with China.
Foreign Affairs secretary Frances Adamson spoke to Chinese ambassador Cheng Jingye to relay Australia's position.
Mr Morrison said there were undoubtedly diplomatic and trade tensions between Australia and China.
"But this is not how you deal with them," he said.
"Despite this terribly offensive post today, I would ask again and call on China to re-engage in that dialogue.
"I would hope that this rather awful event hopefully may lead to the type of reset where this dialogue can be restarted without condition, but we can sit down and start talking sensibly about these issues, because this type of behaviour is not on."
The prime minister suggested he had previously written to Chinese President Xi Jinping in an effort to reset relations.
China intensified its condemnation of alleged war crimes by Australian soldiers in Afghanistan after Russia made similar comments.
Russia claimed allegations of war crimes in Afghanistan had weakened Australia's international standing.
Moscow's foreign ministry spokeswoman also claimed Australian soldiers accused of murdering civilians and torturing prisoners would not be held accountable.
Maria Zakharova said the allegations called into question Australia's commitment to protecting the rules-based world order.
A report released by Australian Defence Force Chief Angus Campbell earlier this month found special forces committed at least 39 unlawful killings during the Afghanistan war and treated two prisoners with cruelty.
Senior cabinet minister Simon Birmingham delivered a thinly-veiled rebuke against Russia.
"Unlike other countries who may sweep these things under the carpet, we undertook a thorough investigation, we're applying remedies to address it," he told the ABC.
Peter Jennings from the Australian Strategic Policy Institute accused Russia of rank hypocrisy.
"This is the Russia that was responsible for the shoot-down of (Malaysian Airlines plane) MH17 over Ukraine, the invasion of Crimea, support to Assad in Syria in murderous ways," he told ABC radio.
"To hear these comments from the Russian foreign ministry just tells me the height of hypocrisy that the Russians are prepared to go to in their sustained attack on Western democracies."
Australian Associated Press