Earlier this week, the grocery giant revealed it would not be selling Australia Day merchandise following a decline in demand.
But the move scandalised Opposition Leader Peter Dutton, prompting him to call on Australians to boycott Woolworths.
In response, Agriculture Minister Murray Watt accused Mr Dutton of attempting to "score a cheap political point" while families were struggling to pay for groceries amidst a cost of living crisis.
"He's out there fighting yet another culture war, talking about what kind of products that supermarkets sell," he told reporters on Thursday.
"This is just typical of Peter Dutton: negative, always seeking to divide people, always shouting at Australians rather than actually bringing people together to tackle the real challenges that matter," he told reporters.
On Thursday morning, Mr Dutton called the supermarket's decision "an outrage".
"For Woolworths to start taking political positions to oppose Australia Day is against the national interest, the national spirit," he told 2GB on Thursday.
"If (customers) don't want to celebrate Australia Day, well that's a decision for them.
"Until we get common sense out of a company like Woolworths, I don't think they should be supported by the public."
A Woolworths spokesperson told AAP in a statement that Australian flags would remain available at its subsidiary Big W year-round, but additional Australia Day-themed merchandise would no longer sit on store shelves.
"There has been a gradual decline in demand for Australia Day merchandise from our stores over recent years. At the same time there's been broader discussion about 26 January and what it means to different parts of the community," they told AAP.
January 26 has become the subject of increasing condemnation as more Australians understand the pain it brings to members of the Aboriginal and Torres Strait Islander communities, who are reminded of the generations of colonial oppression that began when the English First Fleet raised their flag at Sydney Cove in 1788.
In recent years, Invasion or Survival Day rallies have been strongly attended across all capital cities, though many Australians continue to enjoy festivities away from the protests.
Woolworths' move follows in the footsteps of department store Kmart after it announced it would no longer sell Australia Day products in an effort to be "inclusive and respectful".
However, a spokesperson from rival supermarket Coles says the company will continue lining its shelves with Australia Day paraphernalia,
"We are stocking a small range of Australian-themed summer entertaining merchandise throughout January which is popular with our customers for sporting events such as the cricket and tennis, as well as for the Australia Day weekend," they said in a statement.
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