SBS News understands the new Labor ad was aired over the weekend in regional Queensland.
"A Shorten Labor government will build Australian first, buy Australian first and employ Australians first."
The ad features a cast of largely white Australians, with Bill Shorten saying citizens should be prioritised for jobs over foreign workers on 4-5-7 visas.
Liberal MP Craig Laundy says the ad reflects poorly on the Labor leader.
"I'm calling him xenophobic, and Im calling him a scaremonger, and I'm calling him a hypocrite."
Bill Shorten has since acknowledged the ad is flawed, and that the lack of diversity 'won't happen again'.
He says he's flagged the problems with the Labor's head office - but rejects allegations of racism.
"It's rubbish. I'm not in the ad making business. I make no apology for saying that there's been 130,000 apprenticeships cut under the Liberals, that we've had too many rorts in our 457 visa system. But I certainly think we need to encourage as much diversity as we can - I've had a look at the final production, I think we should have had more diversity in it, and I'll be speaking with the Labor party about that."
But Mr Laundy says he doesn't believe Bill Shorten's claim he didn't see the final version of the ad before it went to air.
"The gall of that man to explain to us that he was in an ad and had no idea of the content of that ad... I'm a Western Sydney MP and in Western Sydney we have a simple phrase: we call bullshit."
And there was criticism from within the Labor Party too.
Opposition frontbencher Anthony Albanese says the ad should never have been made.
Albanese: "I think the ad's a shocker. And it should never have been produced, and it should never be shown."
Reporters: is it embarrasing for the Labor Party?
Albanese: "It's a shocker of an ad. It is not the sort of ad that I want my party to be promoting."
Reporters: inaudible (what's wrong with it?)
"I think anyone who sees it will know exactly what's wrong with it."
Indian Australian community member Rishi Prabhakar is expressing his disbelief on lack of diversity in the labor advertisement.
Satyam Katyal a social worker told SBS Hindi that its very sad when one of the prominent political Party cannot give representation to indigenous community in their advertisement.
