Air Chief Marshal Angus Houston pledged that strong action would be taken against soldiers found responsible for the images posted on internet sites.
Details of the 14 video clips were revealed in an article on the Time magazine website which said they appeared to feature "serious wrongdoing by soldiers during their 2004 and 2005 operations in Baghdad".
Posted on YouTube
The "trophy-style" pictures and videos included one of an Australian soldier holding a gun to the head of a man, possibly another soldier, wearing Arab robes and headdress.
Other videos show soldiers exposing themselves, and wielding pistols in apparent breach of safety protocols and fraternising with Iraqis, which the magazine said could potentially jeopardise their safety.
The videos were posted on the YouTube website but have since been removed.
"The behaviour in these few images displays cultural insensitivity, a disregard for operational security and inappropriate handling of weapons and is not condoned or sanctioned by Defence in any way," Air Chief Marshal Houston said.
"There is no place in the (Australian Defence Force) for members who behave in this way. It shows a disregard for the high standards our people maintain."
Air Chief Marshal Houston said most of the imagery showed Australian troops in a wholly positive light.
"We are not talking about a widespread problem here. We are talking about a small number of images," he told reporters.
"We will take action to find out who is responsible for the offending images and we will clearly take action."
Soldiers to be questioned
Army chief Lieutenant General Peter Leahy said he was extremely disappointed that some very unprofessional, immature and silly soldiers displayed such images that brought all other Australian soldiers into disrepute.
"We will complete an investigation," he said. "And then, put simply, I will be asking a question why these soldiers should remain in the army."
The pictures were revealed as the Australian Army investigates the death in Iraq of 25-year-old soldier Jake Kovco who died in mysterious circumstances.
Private Kovco was shot in the head with his own 9mm Browning pistol while in the tiny barracks room he shared with two roommates at the Australian Embassy compound in Baghdad.
Private Kovco’s widow is expected to make an emotional statement at the inquiry this week.