The controversial comments were made following the Prime Minister's keynote address at The Australian-Melbourne Institute conference overnight, during a response to questions on foreign investment.
Mr Abbott acknowledged it was an "emotional" issue, before adding that all Australians have benefitted from foreign investment.
“Our country is unimaginable without foreign investment," he said.
“I guess our country owes its existence to a form of foreign investment by the British government in the then unsettled or, um, scarcely-settled, Great South Land."
The comments have sparked a strong response from the public, while the chairman of the prime minister's Indigenous Advisory Council Warren Mundine labelled them as “very silly”.
“To me I think it was a stupid comment in regard to a very simple question,” he told NITV.
“The question was in regard to for investment. We all know foreign investment is important for Australia and how that investment operates in Australia. He should have left it at that.
"He kept on talking on and ended up with a very silly comment.”
Mr Abbott’s comments drew a stronger response from Senator Nova Peris, who condemned the remarks as highly offensive, incorrect and dismissed of Indigenous peoples.
In a statement, Senator Peris described the British colonisation as “occupation”.
“The comments from the Prime Minister have not just offended Aboriginal Australians, but many people around the world,” she said.
“… Current foreign investment in Australia can be defended, promoted and debated without such insensitive statements form the Prime Minister.”
“The comments from the Prime Minister have not just offended Aboriginal Australians, but many people around the world,” she said.
The comments also sparked a strong response online, sending the term "nullius" trending on Twitter on Friday.
Indigenous social commenter and creator of IndigenousX Luke Pearson was among those shocked at the remarks, stating that "Britain invested in Australia in the same way a bank robber invests in a shotgun & a sack".
Speaking to SBS, Mr Pearson accused the Prime Minister of "rewriting history".
'Age of reform' recommencing
Mr Abbott also used the speech to outline his reform agenda.
"The age of reform has not ended in Australia," he said.
"... This government is arguing for difficult but necessary reforms – not justifying incompetence or trying to excuse negligence."
Mr Abbott said a reforming prime minister can succeed in Australia, outlining his plans to repeal the carbon tax "within a week" and pass the budget.
"Eventually – if not at the first attempt or even the second – this budget will pass, because no one has put up a credible alternative," he said.
Opposition Leader Bill Shorten also addressed the conference on Friday, accusing the Prime Minister of trying to "arrogantly force" budget measures through the Senate.
He also criticised the government's "extravagant" paid parental leave scheme before statting that welfare reforms would lead to "real injustice".
