About 30 men from the National Socialist Movement marched along Spring Street in Melbourne at an anti-transgender rights rally on Saturday afternoon.
The black-clad group repeatedly performed the Nazi salute and held signs calling transgender people offensive names, leading to violent clashes with hundreds of counter-protesters.
In an Australian first, Victoria banned the public display of the Nazi swastika last year and Deputy Premier Jacinta Allan said the state government was looking at what further action it could take to address Saturday's "disgraceful" scenes.
"The government has absolutely no tolerance for this sort of behaviour and we'll continue to work very, very hard to address what sits behind those sorts of disgraceful actions," she said on Sunday.
Multicultural Affairs Minister Colin Brooks said the government would review the Racial and Religious Tolerance Act as it worked to "pull the noxious weed of Nazism out by the roots".
"Not just the heads of the root ... by dealing with the symbols and the gestures," he said.
Officers prevented a brawl between the groups but were powerless to stop the actions of the neo-Nazis, Police Association of Victoria secretary Wayne Gatt said.
He said Victoria could ban the salute but people hell-bent on causing outrage would find a replacement, raising the question of whether the government should outlaw neo-Nazi groups altogether.
"What we've seen is far-right extremism around the world lead to a new form of terrorism," Mr Gatt said.
"We've seen that in New Zealand. We've seen that in many other parts of the world. And, indeed, unchecked in Australia it will have the same effect."
Spring Street and the surrounding area were blocked to traffic for several hours as police, including mounted officers, tried to keep the protesters separated.
Three people were arrested, including a 22-year-old Point Cook man for allegedly putting a female officer in a headlock and taking her to the ground and a 23-year-old Thornbury woman for allegedly slapping a police officer on the neck.
Both are expected to be charged with numerous offences including assaulting police. The two officers were uninjured.
Vision of one arrest posted to social media appeared to show an officer twice knee a prone protester in the back.
In a statement, Victoria Police said it was aware of the vision but no complaint had been received over the arrest.
Liberal MP Moira Deeming, who was photographed at the rally with organiser and British anti-trans activist Kellie-Jay Keen-Minshull, said she was disappointed Victoria Police let the masked men into the buffer zone.
"Police managed to stop hordes of TRAs (trans rights activists), but somehow could only walk masked men past us (sic) ... they did a horrible Nazi salute," she tweeted.
Deputy opposition leader David Southwick, who also called for greater police powers to avoid a repeat of Saturday's incident, said the Victorian Liberals would talk to Ms Deeming following the ugly scenes.
"Her views are not my views and I don't think the views of the Liberal Party ... but she has a right to her views," he said.
The federal Greens said they wrote to Immigration Minister Andrew Giles to call for Ms Keen-Minshull's visa to be revoked ahead of her "Let Women Speak" tour of Australia, citing her followers' alleged involvement in violent rallies.
In a joint statement with LGBTQI, multicultural, women's and other groups, Equality Australia chief executive Anna Brown suggested neo-Nazi and anti-trans ideologies had much in common.
"They target vulnerable minorities to incite hatred and fear," she said.
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