Clive Palmer has been condemned by senior Abbott government ministers, the federal opposition and business groups for labelling the Chinese government ''mongrels'' who ''shoot their own people''.
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China has also lashed the statements, branding Mr Palmer as ''absurd''.
"The words of Mr Clive Palmer MP are absurd and irresponsible, which are full of ignorance and prejudice,'' the Chinese embassy in Canberra said in a terse statement.
''We believe that a sound China-Australian relationship serves the fundamental interests of both countries. It is and will always be supported by the two peoples."
Treasurer Joe Hockey, Foreign Minister Julie Bishop, Trade Minister Andrew Robb and Agriculture Minister Barnaby Joyce all criticised Mr Palmer's comments on ABC TV's Q&A program on Monday night.
On Wednesday, Prime Minister Tony Abbott said Mr Palmer's comments were ''over the top, shrill and wrong''.
The China boom had kept Australia going through the worst of the global financial crisis, Mr Abbott said.
''It's one of the reasons why we want to maintain a strong relationship with China, one of the reasons why what Clive Palmer said the other night was so destructive,'' he told ABC radio.
Mr Hockey said Mr Palmer's outburst was potentially ''hugely damaging'' to Australia's relationship with China.
''He is the big beneficiary of a Chinese investment partner; someone that has paid to help him to develop his resources. Now, he is in a very obvious legal dispute with his Chinese partners, but I would say to Mr Palmer, please do not bring down the rest of Australia because of your biases,'' he said.
But an unapologetic PUP leader refused to back down later on Tuesday, tweeting that he had ''not intended to refer to Chinese people'' but to CITIC Pacific in particular, the company he is in dispute with. ''They [China] have a national policy to acquire resources and they do it in a ruthless manner,'' he told Fairfax radio.
Australian Industry Group chief executive Innes Willox condemned the ''ill-considered and inappropriate statements'' and added they were ''a new low in the political debate''.
But BHP Billiton boss Andrew Mackenzie said on Wednesday that he was unconcerned by the comments, saying the strength of Australia's relationship with China would ''rank more highly in the minds of the Chinese''.
''I think the people in China can see through that,'' Mr Mackenzie told ABC radio. ''They're comments by an individual and they’re not on behalf of any other Australian supplier.''
But two of Mr Palmer's senators leapt to his defence, with Senator Jacqui Lambie warning Australia risked becoming ''slaves to an aggressive, anti-democratic, totalitarian foreign power''.
''I strongly support the general point that Clive made about communist China's military capacity and threat to Australia. If anybody thinks that we should have a national security and defence policy which ignores the threat of a Chinese Communist invasion - they're delusional and got rocks in your head.''
Chinese-born senator Dio Wang said: ''I have found Clive to be consistently respectful and supportive throughout our relationship.
''There has never been the slightest suggestion on his part of a prejudicial view of members of the Chinese community,'' he said.
Mr Joyce said on Wednesday that Senator Lambie's comments might sound funny after 15 beers in the pub but said they should not be coming from a senator.
''You are a senator of Tasmania,'' the agriculture minister told the Nine Network. ''No longer can you talk like you might at half-past seven at the corner pub.
''These things sound amusing when they're said after 15 beers, but they're very, very dangerous if you want to say them on national television.''
Senator Joyce said that he would visit China in September to meet his Chinese counterparts for APEC trade discussions, where he would negotiate for more Australian products to be exported.
China is Australia's largest trading partner, with two-way trade hitting nearly $151 billion in 2013.
The PUP leader and billionaire businessman is embroiled in a legal battle with Chinese state-owned company CITIC Pacific, which has accused the mining magnate of siphoning off $12 million. Mr Palmer has strenuously denied accusations that his company, Mineralogy, misused CITIC Pacific's cash to finance PUP's federal election campaign.
Opposition Leader Bill Shorten said China was one of Australia's good friends and the comments were irresponsible and ''certainly not in Australia's best interests''.
''China is one of our most important relationships and unwarranted sprays like this are not helpful at all,'' he said.
West Australian Premier Colin Barnett apologised to China for Mr Palmer's comments, labelling them ''offensive, abhorrent and damaging'' to WA and Australia's long-standing relationship with China.
With Daniel Flitton, AAP
