Prime Minister Scott Morrison has slammed a "repugnant" Chinese Foreign Ministry social media post and demanded an apology.
The post on Twitter includes a digitally altered image depicting an Australian soldier holding a bloodied knife to an Afghan child's throat.
It's the latest escalation in growing tension between Australia and China, which has been increasingly placing restrictions on trade.
Chinese Ministry of Foreign Affairs deputy director Zhao Lijian posted on Twitter that Australian soldiers must be held accountable for war crimes detailed in the recently published Brereton report.
"Shocked by the murder of Afghan civilians & prisoners by Australian soldiers. We strongly condemn such acts, & call for holding them accountable," he tweeted.
It was posted along with a graphic, digitally altered image of a soldier standing on an Australian and Afghanistan flag. The soldier is threatening a young child, holding a knife to its throat. It has the caption, "Don't be afraid, we are coming to bring you peace!".
Mr Morrison said the image was "deeply outrageous" and said he wanted the post removed and had sought an apology from the Chinese government.
"It is utterly outrageous and it cannot be justified on any basis whatsoever," he said.
"Australia is seeking an apology from the Ministry of Foreign Affairs from the Chinese government for this outrageous post."
Mr Morrison said he had contacted Twitter to ask the post be removed.
As of 4pm on Monday, the social media site had censored the image but had not taken it down.
Foreign Minister Marise Payne said the government had called in the Chinese ambassador over the tweet.
"It is an appalling disgusting and outrageous piece of social media. It is a tweet which illustrates the absolute scourge of disinformation and misinformation that's in social media and it cannot be justified on any basis," Senator Payne said.
"We will be conveying that message in Beijing through our ambassador.
"It is the most egregious example of this kind of conduct that I have seen in my time in the parliament and my time in the ministerial portfolio."
Labor leader Anthony Albanese also condemned the image.
"It is gratuitous, inflammatory and deeply offensive," Mr Albanese said.
Greens leader Adam Bandt said the image was "contemptible".
"Photoshopping images does nothing to help the victims nor to hold to account those responsible for war crimes in Afghanistan," Mr Bandt tweeted.
Australian Strategic Policy Institute's director of the defence, strategy and national security program Michael Shoebridge said the tweet was "breathtaking".
"It's like a burglar pointing out someone failed to pay for their item at the checkout," Mr Shoebridge said.
Mr Shoebridge said the tweet would only "draw attention to the incredible discord between China's words and actions".
"I think it's a vivid and stark demonstration of the contrast in our systems of government and why it's so important to understand that difference," Mr Shoebridge said.
"The reason the world knows about these alleged 39 unlawful killings is because the Australian government just released a 480-page forensic investigation into the abuse and committed to prosecuting anyone who committed these crimes.
"The world only knows about the mass atrocities the Chinese government is committing every day with the Uyghurs and Hong Kong is because of leaked accounts from escapees and satellite imagery showing the extent of the camps."
It's estimated around one million Uyghurs - one of a number of persecuted Muslim minorities in Xinjiang - have been detained in what China calls "vocational training centres".
However Hu Xijin - the editor-in-chief of the Global Times, known as a mouthpiece for the Chinese Communist Party - said Mr Morrison's demand for an apology was "ridiculous and shameless".
"It is a popular cartoon that condemns the Australian special forces' brutal murder of 39 Afghan civilians. On what ground does Morrison feel angry over the use of this cartoon by the spokesperson of Chinese FM," he tweeted.
A long-running inquiry found credible evidence of murder and willful cover-up of war crimes in Afghanistan by Australian special forces personnel, frequently with complicity of their patrol commanders.
It found 25 special forces personnel killed 39 individuals in practices known as "throwdowns" - where concealable weapons were placed on the bodies of those killed in order to photograph evidence to justify the killings.
Tensions have been steadily rising between Australia and China but Mr Morrison said the post was not how you dealt with it.
"There are undoubtedly tensions that exist between China and Australia but this is not how you deal with them," he said.
Last week, China imposed significant anti-dumping duties on Australian wine imports. Earlier, it slapped prohibitive tariffs on Australian barley, our second-largest agricultural export to China worth $1.5 billion.
Australian beef was also dragged into the fray when imports from certain abattoirs were banned by the Chinese government.
Tonnes of Australian lobsters were left to rot on a Chinese tarmac earlier this month due to significant delays in customs processing.
Defence Minister Linda Reynolds also re-signed Australia on Friday to the long-standing military partnership known as the Five Powers Defence Arrangements. It commits Australia, Malaysia, New Zealand, Singapore and the UK to "consult" each other immediately in the event or threat of an armed attack of any of these five countries.