The inflammatory tweet by a Chinese government official has been widely condemned and even prompted Prime Minister Scott Morrison to call for an official apology.
The Chinese embassy in Canberra has dismissed anger over the release of a fake war crimes photo as an "overreaction".
The inflammatory tweet by a Chinese official, which contained a fake photo of an Australian soldier slitting an Afghan child’s throat, has received widespread condemnation, prompting a demand for an apology from Prime Minister Scott Morrison.
A Chinese embassy spokesperson on Tuesday showed no signs of backing away from the incident, instead accusing Australia of further stoking tensions between the countries.
"The rage and roar of some Australian politicians and media is nothing but misreading of and overreaction to Mr Zhao’s tweet," the spokesperson said.
The spokesperson said a phone complaint to the Chinese ambassador from DFAT secretary Frances Adamson amounted to "unwarranted accusations" that were "absolutely unacceptable".
Twitter on Tuesday rebuffed Australian calls to remove the incendiary tweet.
The social media network, which is banned for most citizens in China, said it had marked the tweet as "sensitive," but added that comments on topical political issues or "foreign policy sabre-rattling" by official government accounts were generally not in violation of its rules.
Prime Minister Scott Morrison on Monday afternoon said the fake photo was "repugnant" while urging China to take responsibility.
The Twitter post by foreign ministry spokesperson Zhao Lijian relates to the Brereton Report into alleged war crimes committed by Australian special forces soldiers in Afghanistan, which was released earlier this month.
The Chinese embassy said Australia's response tried to "deflect public attention" from the "horrible atrocities by certain Australian soldiers" and blame China for the "worsening of bilateral ties" .
"There may be another attempt to stoke domestic nationalism," the spokesperson said.
"All of this is obviously not helpful to the resetting of bilateral relationship."
The embassy said the Australian side should face up to the crimes committed by the Australian soldiers in Afghanistan, calling for perpetrators to be held accountable and for justice to be brought to the victims.
"We also urge the Australian side face up to the crux of the current setback of bilateral relationship and take constructive practical steps to help bring it back to the right track," the spokesperson said.
'There is absolutely no excuse for this tweet'
The divisive tweet has continued to cause widespread condemnation and concern from Australian politicians, increasingly worried about its impact amid deeply-strained relations between Beijing and Canberra.
The diplomatic impasse has also prompted fears that Chinese-Australians could be unfairly targeted because of the incident as tensions intensify between the two countries.
Acting Immigration Minister Alan Tudge held an emergency phone hook-up with Chinese community leaders on Monday evening to reassure them they have the government’s support.
He told reporters on Tuesday the tweet represented the views of the Chinese Communist Party - not the 1.2 million Australians who have Chinese heritage.
“It would be wrong to associate the views of the Chinese Communist Party with anybody else who is an Australian citizen,” he said.
“There is absolutely no excuse for this tweet, absolutely none. It was deeply offensive. Deeply offensive towards our Defence Forces and indeed deeply offensive to all Australians.”
Foreign ministry spokesperson Hua Chunying on Monday evening rejecting demands for China to issue an apology instead suggesting the Australian government should instead "do some soul-searching".
"The Australian side is reacting so strongly to my colleague's Twitter. Does that mean they think the cold-blooded murder of innocent civilians is justified, while other people's condemnations of such crimes are not justified?" she said.
"The Australian government should do some soul-searching and bring the culprits to justice.
"Shouldn't the Australian government feel ashamed? Shouldn't they feel ashamed for their soldiers killing innocent Afghan civilians?"
Australia must respond 'calmly' and 'strategically'
Australia’s relationship with China has deteriorated since Mr Morrison led calls for independent inquiry into the coronavirus pandemic - prompting backlash from Beijing.
This includes trade disputes such as China slapping import tariffs on Australian agricultural products like barley and wine.
Among Beijing's other concerns are the cancellation of extradition agreements tied to political unrest in Hong Kong and Australia’s consistent speaking out on human rights issues in China.
Labor’s foreign affairs spokesperson Penny Wong told reporters the “gratuitous” and “provocative” tweet had rightly been met with unified condemnation.
But she said Australia must ensure it responds “strategically” rather than “emotionally” as it attempts to manage the increasing strained relationship with China.
“In the face of deliberate provocation, whether it’s in this context or elsewhere - it’s always best if we respond calmly and strategically rather than emotionally,” she said.
“What we have to do is to be very clear about how we want to approach China that is behaving in this way. We should respond calmly, we should respond strategically. And we should respond with unity."
She said this should include working with the incoming Biden administration and other aligned nations to reinforce rules to help manage China’s behaviour.
'It's not the work of a smart diplomat'
Chinese state media arm the Global Times has further added to the aggressive rhetoric coming from Beijing.
The editorial accuses Mr Morrison of losing his manners by attacking Chinese foreign ministry spokesperson Zhao Lijian through his demands for an apology.
“Canberra implements a wolf-style policy toward China and has become the most savage accomplice of US suppression of China,” it wrote.
“As a warhound of the US, Australia should restrain its arrogance. Particularly, its warships must not come to China's coastal areas to flex muscles, or else it will swallow the bitter pills.”
However, Nationals MP Barnaby Joyce said it was the tweet from Mr Zhao that had acted to inflame tensions between the countries.
“This is the puerile act of an imbecile not the act of an incredibly complicated civilisation,” he said.
“I'm sure that within the Chinese government there are calmer heads and cooler heads and smarter heads to be quite frank.”
The Afghan government on Tuesday issued a subdued statement about the developing scandal.
"The Islamic Republic of Afghanistan believes that both Australia and China are key players in building and maintaining international and regional consensus on peace and development in Afghanistan," the statement read.
"Afghanistan hopes to maintain and strengthen cooperation with the two countries."
Calls to stand by Chinese-Australians
Chinese-Australians have previously warned of becoming “collateral damage” amid the increasingly strained ties between China and Australia.
The Chinese Community Council of Australia told a Senate inquiry earlier this year that rising political tensions have led to increased marginalisation, including racism.
Greens Leader Adam Bandt has also warned against Chinese-Australians becoming the “brunt of attacks” within the Australian community as relations continue to deteriorate.
“It’s very, very important at the moment - to stand strongly with Chinese Australians and Australia of Asian descent,” he told reporters.
“We know when these kind of disputes happen - it can often be people who have nothing to do with the governments in question - who bear the brunt of attacks within the Australian community.”
New Zealand raises concerns with China
New Zealand leader Jacinda Ardern said she has raised concerns with China over the falsified image.
“I’ve seen some of the latest discussion over what was a Twitter image. New Zealand has registered directly with Chinese authorities our concern over the use of that image. It was an unfactual post, and of course that would concern us,” Ms Ardern said.
“In this case an image has been used that is not factually correct ... that is not a genuine image. So we have raised that directly with Chinese authorities.”
She said she had not spoken to Mr Morrison about the incident before raising it with China.
“In keeping with our principled position we will raise concerns, and we will do it directly.”