The Commonwealth is expected to file an application in the Federal Court that will seek to remove overseas claims from the legal action, arguing the Sex Discrimination Act does not apply outside Australia.
Senator Lambie, an army veteran, said Labor could fix the issue immediately by discontinuing its action.
"I don't care where you're serving, if you're in that uniform and you're discriminated against or you're abused ... the perpetrators need to be dealt with, and you need to be paid compensation," she told reporters in Canberra.
"(It's) absolutely unbelievable that Anthony Albanese himself, the prime minister, would be allowing this to go on.
"Leave the women in uniform alone."
The Tasmanian politician routinely advocates for defence and veterans' issues, and pushed for a royal commission into Defence and veteran suicide.
Joshua Aylward, the lawyer leading the class action, said about 2500 women had joined the class action, which alleges sexual abuse and harassment in the Australian Defence Force.
"These women are protected when they're in Sydney but not when they're in Singapore," he said.
"Why the government ... are pursuing this as hard as they are, they haven't said, but what they are trying to do is to limit the number of people that can be part of the class action."
Donna Manton, a survivor of military sexual violence, said numerous inquiries and reports had shown the issue to be "rampant" within Defence.
"Women veterans have had enough, we've suffered enough, and we expect our government to look after us and protect us," she said.
"Whether we're here in Australia, whether we're overseas or not, whether we're in an army uniform or a navy or an air force uniform, those protections should be exactly the same.
"I'm disappointed that an organisation that so many of us have given so much of our lives to, continues to treat us in such a shabby, appalling manner."
Ms Manton also chairs the Athena Project, a group supporting and advocating for victim-survivors.
Veterans' Affairs Minister Matt Keogh announced in 2025 a standalone inquiry into military sexual violence that will likely begin in mid-2026, after it was recommended by the royal commission.
The inquiry found sexual misconduct in the military to be systemic.
The Department of Finance, which is managing the legal action on behalf of the Commonwealth, said it was seeking to "address certain preliminary aspects" in the early stages of the case.
"Clarifying these points with the court is an important step in progressing the matter," the spokesperson said.
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