China's deputy ambassador has accused Scott Morrison of overreacting to a social media post about alleged war crimes by Australian soldiers in Afghanistan.
Wang Xining criticised the prime minister's angry response to the incendiary doctored image of an Australian soldier holding a bloodied knife to the throat of an Afghan child.
"I think it's unfortunate that this issue evolved in such a way that has gone astray and now there is a much larger visibility of the Brereton report in China," he told reporters in Canberra on Friday.
"More people are attentive to what happened in Afghanistan.
"People wonder why a national leader would have such a strong opinion to an artwork done by a normal young artist in China."
The European Union has blasted the "irresponsible, insensitive" tweet.
Representatives from the powerful political and economic bloc raised the issue with a Chinese vice-foreign affairs minister.
"We consider the deliberate dissemination of a fabricated image via social media accounts affiliated with China's Ministry of Foreign Affairs to be irresponsible, insensitive, and not at all constructive, particularly given the subject in question," an EU spokesman told AAP.
"Such behaviour and use of information tools to disseminate fabricated images or information cannot be justified."
Australia's intelligence allies including the United States, New Zealand and Canada have all criticised the aggressive Chinese tweet.
The EU is closely following deteriorating relations between China and Australia, with trade and diplomatic ties sinking to a new low.
"We hope that China and Australia can re-engage in dialogue, avoid escalation and unilateral pressure," the spokesman said.
The diplomatic spat was also raised at a recent EU-Australia leaders' meeting.
Mr Wang played down a barrage of attacks on Australia in Chinese state media and dismissed a list of grievances raised by the embassy as "just some examples of what we disagree with".
He denied there was a diplomatic deep freeze in place, despite the fact Australian ministers cannot get their Chinese counterparts on the phone.
And despite a string of recent trade strikes, the deputy ambassador denied China was pursuing a concerted campaign targeting Australian goods.
Mr Wang also argued Australian leaders had been ill advised by public officials and government-funded think tanks.
"Taxpayers are the backbone of society and keep the host community running. Unfortunately the leadership here have been ill advised by people who consume tax, not contribute to tax," he said.
"I hope people could have a clearer mind of what is happening on the ground."
He said the ball was in Australia's court to change relations with China.
But Attorney-General Christian Porter said the relationship was a two-way street and there was nothing in recent times Australia would have done differently.
"This is going to be a matter of ongoing dialogue and patience. Obviously a lot of work will be required," he told reporters.
