Prime Minister Scott Morrison said Beijing should be "utterly ashamed" for sharing the "repugnant" image, reports BBC.

The incident occurred amid rising political tension between the two countries.

The image referred to alleged war crimes by Australian soldiers - murders of Afghan civilians and prisoners, BBC reported.

On Monday, Chinese foreign ministry spokesman Lijian Zhao posted a fabricated image which portrayed an Australian soldier with a bloody knife next to a child. The child is seen holding a lamb, reported BBC.

The image appears to be a reference to previously reported allegations that elite Australian soldiers used knives to murder two 14-year-old Afghan boys, reported the newsportal.

Zhao tweeted: "Shocked by murder of Afghan civilians & prisoners by Australian soldiers. We strongly condemn such acts, & call for holding them accountable."

However, China has refused to apologise on the issue.

"The Australian side has been reacting so strongly to my colleague's tweet. Why is that? Do they think that their merciless killing of Afghan civilians is justified but the condemnation of such ruthless brutality is not? Afghan lives matter!

"The Australian government should conduct honest and deep reflections and hold the perpetrators accountable. It owes the Afghan people a formal apology and a solemn promise that it will never ever commit these horrible crimes again," said Chinese foreign ministry spokeswoman Hua Chunying.

"You cited the Australian side's words that the Chinese government should be ashamed. Shouldn't the Australian government feel ashamed that some of its soldiers on official duty in Afghanistan committed such cruelties?" she said.