The Sportsbet ad has Canadian Johnson, who was stripped of his 100 metres gold medal in the 1988 Seoul Games after testing positive to a banned steroid, promoting a "juiced-up" mobile phone app.
"It tested positive for speed and power again and again," says Johnson in the ad, which includes other doping-related puns and muscular athletes touting the app.
Federal sports minister Greg Hunt criticised Sportsbet and said the company should pull the ad.
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"To use a known drug cheat such as Ben Johnson to advertise their product is utterly inappropriate," local media quoted Hunt as saying on Monday.
Independent senator Nick Xenophon called upon the national media watchdog, the Australian Communications and Media Authority, to take action.
"It is just wrong on so many levels -- glorifying a drug cheat, tying it in with gambling and promoting it to kids in a lighthearted way," Xenophon said.
Australia's anti-doping watchdog said the ad sent "completely the wrong message."
"This advertising campaign belittles the achievements of clean athletes and denigrates those who work to protect clean sport across the world," the Australian Sports Anti-doping Authority said in a statement.
Outspoken Australian swimmer Mack Horton, who sparked controversy at the Rio Olympics by calling a Chinese rival a "drug cheat", was also disapproving.
"This is naht cool," the Olympic 400 metres freestyle champion wrote on Twitter.
Sportsbet said it would not pull the ad.
"Sportsbet does not condone the use of performance enhancing drugs ... (but) we make no apologies for injecting some humour into advertising," a Sportsbet spokesman told News Ltd media.
The proliferation of gambling advertising at sport venues and on television has raised alarm bells in Australia, where nearly A$23 billion (13.2 billion pounds) was lost in all forms of legal wagering in the 2014-15 financial year, up nearly eight percent on the previous year, according to government statistics.
Earlier this month, Prime Minister Malcolm Turnbull confirmed the government would ban gambling ads from live sporting events before 8:30 p.m. and for five minutes before and after the start of play.
(Reporting by Ian Ransom; Editing by Amlan Chakraborty)
