Foreign Minister Penny Wong said Israel must "listen to its friends and the international community", saying there was growing consensus for an immediate humanitarian ceasefire.
"Many civilians who were displaced in Israeli operations in the north have moved south to this area, often under Israeli direction," she said.
"Israel now must exercise special care in relation to these civilians.
"Not doing so would have devastating consequences for those civilians and cause serious harm to Israel's own interests."
Israeli Prime Minister Benjamin Netanyahu has brushed off international criticism about the military operation in Rafah, saying civilians would be granted safe passage to leave.
Israel plans military strikes on Gaza's Rafah where 1.4 million Palestinians are sheltering. (EPA PHOTO)
The Palestinian presidency criticised the decision, accusing Israeli of trying to forcibly displace people.
"The Palestinian people will not abandon their land and will not accept being forcibly displaced from their homeland," it said in a statement.
More than 1200 people were killed and 240 others taken hostage when Hamas attacked Israel on October 7, in what the Australian government has declared a terror event.
Israel's subsequent war on Hamas in the Gaza Strip has killed more than 27,000 Palestinians and wounded another 66,000 people, according to the local health ministry.
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