Foreign Minister Penny Wong has demanded Israel stop its operation in Rafah, after a strike in a tent camp killed dozens of people, including many women and children.
Palestinian health officials say at least 45 people, around half of them women and children, were killed in Sunday's strike.
The fire also could have ignited fuel, cooking gas canisters or other materials in the densely populated camp housing displaced people.
Speaking in Senate estimates last night, Wong reiterated her pleas for Israel to "not go down this path".
"The international community has been one on this. What we have seen in the past 24 hours reinforces why we and the international community issued this warning," she said.
"The death and destruction in Rafah is horrific.
"This human suffering is unacceptable, and we reiterate to the government of Israel, this cannot continue."
Israeli Prime Minister Benjamin Netanyahu acknowledged a "tragic mistake" after the strike in the southern Gaza city set fire to a tent camp housing displaced Palestinians.
The strike caused widespread outrage, including from some of Israel's closest allies, such as the United States.
Sunday night's attack, (Monday morning AEST) which appeared to be one of the war's deadliest, helped push the overall Palestinian death toll in the war above 36,000, according to the Gaza Health Ministry, which does not distinguish between fighters and non-combatants in its tally.
"Despite our utmost efforts not to harm innocent civilians, last night, there was a tragic mistake," Netanyahu said on Monday in an address to Israel's parliament.
"We are investigating the incident and will obtain a conclusion because this is our policy."
Israel's military overnight said an initial investigation found the deadly Rafah blaze was caused by a secondary explosion.
A military official, speaking on condition of anonymity pending a formal announcement, said yesterday that the military fired two 17-kilogram munitions that targeted two senior Hamas militants.
The official said the munitions would have been too small to ignite a fire on their own and the military is looking into the possibility that weapons were stored in the area.
New strikes in the same western Tel al-Sultan district of Rafah that was hit Sunday killed at least 16 Palestinians, the Palestinian Civil Defence and the Palestinian Red Crescent said yesterday.
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Residents reported an escalation of fighting in the southern Gaza city once seen as the territory's last refuge.
An Israeli incursion launched in early May has caused nearly one million to flee from Rafah, most of whom had already been displaced in the war between Israel and Hamas.
They now seek refuge in squalid tent camps and other war-ravaged areas.
Israel insists it adheres to international law even as it faces scrutiny in the world's top courts, one of which last week demanded that it halt the offensive in Rafah.
Wong reiterated calls for an immediate humanitarian ceasefire and for Hamas to release the hostages remaining from its October 7 attack, which triggered the war by killing some 1200 civilians and abducting about 250.
Netanyahu has vowed to press ahead, saying Israeli forces must enter Rafah to dismantle Hamas and return hostages.
Israel says it is carrying out limited operations in eastern Rafah along the Gaza-Egypt border. But residents reported heavy bombardment overnight in Tel al-Sultan.
"It was a night of horror," said Abdel-Rahman Abu Ismail, a Palestinian from Gaza City who has been sheltering in Tel al-Sultan since December.
He said he heard "constant sounds" of explosions overnight and into yesterday, with fighter jets and drones flying over the area.