The war of words over the future of Australia's embassy in Israel has escalated with Treasurer Josh Frydenberg accusing the Malaysian leader of anti-Semitism.
Treasurer Josh Frydenberg has taken aim at Malaysian Prime Minister Mahathir Mohamad for his past comments about Jewish people.
The Australian government is reviewing whether the embassy in Israel should be shifted to Jerusalem, which has sparked a war of words with Muslim nations in the region and delayed a trade deal with Indonesia.
Prime minister Mahathir this week warned that Australia moving its embassy in Israel could encourage terrorism.
Treasurer Frydenberg has hit back, saying the Malaysian prime minister "has form" when it comes to making "derogatory" comments about Jewish people.
"He has called Jews 'hooked-nosed people'. He has questioned the number of people that have been killed in the Holocaust. He banned Schindler's List as a movie being shown, though it showed the amazing story of a righteous gentile who saved many people from persecution," Mr Frydenberg told reporters in Melbourne on Friday.
Mr Frydenberg said Australia would make its own foreign policy decisions in its own national interest.
Prime Minister Scott Morrison has promised to "review" the merits of moving the embassy from Tel Aviv to Jerusalem and told reporters to expect a decision before Christmas.
But Australia's Muslim-majority neighbours in Asia have warned the Morrison government not to go ahead with a potential plan to move its embassy in Israel to the city of Jerusalem, saying it could embolden extremist groups to commit further attacks.
Malaysia's Prime Minister Mahathir Mohamad raised the issue during a meeting with Scott Morrison in Singapore on Thursday.
"I pointed out that in dealing with terrorism, one has to know the causes," Dr Mahathir told reporters.
"Adding to the cause for terrorism is not going to be helpful."
Treasurer Frydenberg said the prime minister was "absolutely right" to consider the move and hosed down the comments from Malaysia and Indonesia.
"We're absolutely right to commence this process and call out some of the double standards that have been applied by countries, including in our region and more broadly afield, against Israel and its history and its values," Mr Frydenberg told ABC radio on Friday.