Liberal MPs and senators are distancing themselves from Jacinta Nampijinpa Price's claim that Labor is accepting migrants who "support their policies, their views and vote for them as well."
Speaking on the ABC on Wednesday, Senator Price singled out "the Indian community" as an example.
Shortly after, she appeared to walk back her comments before later saying she didn't think she had anything to apologise for and blaming the interviewer for bringing up the topic.
Australian National University academic Frank Bongiorno, who specialises in political history, said the firebrand senator's remarks were "very damaging to the Liberal brand" at a time when the party was already struggling for votes.
"All the indications are that it's electoral poison," he told AAP.
Professor Bongiorno said the comments were likely to have a lasting impact on how migrant communities saw the coalition.
"Those impressions stick and they can actually stick for years," he said.
"Many (migrants) do have quite conservative cultural values that probably are more in keeping with ideas that you find within the Liberal and the National party but ... there's a sense this is a place that's hostile to them."
Liberal members have been playing down the comments publicly and privately, describing them as unhelpful and not representative of the broader party's position.
The debate follows multiple anti-immigration rallies over the weekend, some of which featured flyers carrying anti-Indian rhetoric.
The coalition, which tried during its disastrous election campaign to court members of the Indian diaspora, is now facing anger from members of the community.
They argue the remarks undermine Australia's non-discriminatory immigration policy and risk eroding public trust.
"She should at least apologise, people make mistakes right?" Sikh Association of the Northern Territory president Harpal Singh said.
"But the problem is the timing."
Violent and widely condemned anti-immigration rallies around the nation have stoked debate about Australia's immigration policy.
"Just after those protests, saying something like this, it just alienated people from Indian ethnicity," Mr Singh said.
"It's a shame."
A former president of the Indian Cultural Society of the Northern Territory said the NT senator's comments did not reflect widely held views.
"I don't know what motivated her to pick a particular community group ... it might have been that her thoughts were misdirected or she wasn't advised properly," Bharat Desai said.
Migration expert Anna Boucher said people were more likely to vote on the basis of class than ethnicity.
"When the population is so multicultural, a lot of people are going to take offence at a suggestion that the migration policy is driven by race, when we've had a non-discriminatory program since the 1970s," the University of Sydney associate professor said.
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