Home Affairs Minister Karen Andrews on Thursday announced the Nationalist Social Order, also known as Atomwaffen Division, would become the third far-right group added to the list, joining The Base and Sonnenkrieg Division.
Labor's legal affairs spokesperson Mark Dreyfus welcomed the addition, though he said the recognition was well overdue.
The extremist hate group is known as a network of neo-Nazi supporters who wish to overthrow governments and start race wars in order to achieve a white ethnostate.
It is unclear whether the violent far-right group has established a presence within Australia.
The entirety of Palestinian nationalist group Hamas, including its social welfare wing, will also be added as a banned terrorist organisation.
The government had "zero tolerance for violence" as Ms Andrews announced the banning of the two groups along with six other violent extremist organisations.
"The views of Hamas and the violent extremist groups listed today are deeply disturbing, and there is no place in Australia for their hateful ideologies," Ms Andrews told reporters in Canberra on Thursday.
"It's vital that our laws not only target terrorist actions, and terrorists, but also the organisations that plan, finance and carry out these acts."
The listing of the Nationalist Social Order will come into effect immediately.
Ms Andrews said the listing of Hamas would be finalised soon upon consulting with her state and territory counterparts.
"Should Hamas be listed, it will replace the current listing of Hamas' Izz al-Din al-Qassam Brigade," she said.
Other groups to be listed as terrorist organisations under the criminal code include Hay'at Tahrir al-Sham and Hurras al-Din.
The government has also re-listed Abu Sayyaf Group, al-Qa'ida, al-Qa'ida in the Lands of the Islamic Maghreb and Jemaah Islamiyah.
Levi West, terrorism studies director at Charles Sturt University, welcomed the listings as a "positive" development.
"The inclusion of right wing groups such as NSO, formerly affiliated with the US based Attomwaffen Division; the Palestinian-based Hamas in its entirety, as well as Syrian-based al-Qa'ida affiliate HTS, reflects the increasingly dynamic, diverse and complex threat environment," he said.
But Mr Dreyfus said the government should have recognised the threat of these far-right groups a lot earlier.
"We welcome the belated recognition of the threat these groups pose to Australia," he said.
"For far too long the Morrison government has failed to take seriously the threat posed by right-wing extremist groups.
"No one in Australia should be assisting organisations, which promote extremism and hate, and that's precisely why these powers exist."
The Australian Security Intelligence Organisation's director-general Mike Burgess has previously warned ideologically-motivated extremism, including right-wing terrorism, was on the rise, mirroring a global trend.
It represented around half of the agency's onshore counter-terrorism caseload, he said.
The top spy warned extremists could be "young, well-educated, articulate, and middle class" making it harder to identify.
In his threat assessment, delivered last week, he added he was concerned by the sharp rise in the number of minors associated with its priority counter-terrorism investigations.
Young radicalised violent extremists had taken it upon themselves to target and recruit lonely peers to their causes both online and in school settings, he said.
The ASIO boss said his agency did not belong in the schoolyard and needed governments, in conjunction with schools, sports clubs, parents and carers, to intervene and support in these cases.
"As a nation, we need to reflect on why some teenagers are hanging Nazi flags and portraits of the Christchurch killer on their bedroom walls, and why others are sharing beheading videos," Mr Burgess said.
"Perhaps more disturbingly, these young people are more intense in their extremism.
"Where once minors tended to be on the fringe of extremist groups, we are now seeing teenagers in leadership positions, directing adults, and willing to take violent action themselves."
- with AAP