Unregulated social media platforms help promote and fund extremist groups including white supremacists, politicians have been warned.
Right-wing extremism has been identified as an increasing threat by Australia's intelligence organisation ASIO, with concerns about the young age of people becoming radicalised.
Neo-Nazis were able to use mainstream sites such as X, formerly Twitter, to promote content and increase their following by reaching larger audiences as well as fundraising, researcher Jordan McSwiney said.
"Prior to the mainstreaming of social media, it was pretty niche, web servers, mailing lists ... so they get bigger audiences, they can use it for targeted harassment," he told a parliamentary inquiry on Wednesday.
"There was a recent instance of one of Australia's main neo-Nazi groups raising $15,000 on a fundraiser for a white-only parallel community.
"That fundraising effort was eventually frozen by the platform but the group still gets some money ... and that's money going directly into the pockets of neo-Nazis who are part of a movement that advocates and certainly glorifies violence."
X has been contacted for comment.
The inquiry was also told how right-wing extremists groups were driving abuse towards Muslims in Australia.
Mariam Veiszadeh, the founder of Islamophobia Register Australia, said there had been a 581 per cent increase in Islamophobic incidents across the nation since Hamas attacked Israel on October 7.
The number of incidents was unprecedented, Ms Veiszadeh said.
"We've observed and received a number of incident reports highlighting and concerning pattern of Islamophobia from right-wing and fascist groups," she said.
"The vast majority of the victims of Islamophobia are those people that are visibly Muslim, in this case, women in hijab, and even post-October 7, in terms of the victims of Islamophobia, that trend has unfortunately continued."
On university campuses, political activity over the war in Gaza has reached intensity levels not seen since the 1960s.
Economic inequality and the COVID-19 pandemic and further fuelled the social tensions, Universities Australia chief Luke Sheehy said.
He pointed to neo-Nazis on a Victorian university campus as one of the flashpoints.
"One of the things that universities overall attempt to do is address racism as a key driver of extremism, and it's a key priority for all Australia's universities," he said.
About 10 per cent of the population falls into an extremist space, Rachel Sharples from the Challenging Racism Project told the inquiry.
Another 15 per cent were adjacent to it or believed in assimilation ideology rather than straight-out supremacism.
Despite most people supporting multiculturalism, a large number held what could be described as problematic views in that they were politically neutral, which fostered inaction against extremism, or believed in assimilationism, Dr Sharples said.
"Which means we're OK with cultural diversity as long as they're behaving or adapting to mainstream Australian culture and values," she said.
"So it would be the dropping of home country cultural values in exchange for Australian values being the primary identification. We are talking about one cultural value overpowering all else."
The Home Affairs Department raised concerns extremist groups were moving away from traditional social media platforms to niche sites that didn't moderate content.
ASIO warned nationalist and racist violent extremists carrying out attacks overseas were resonating with members of extremist groups in Australia.
Online platforms remain enablers of radicalisation and there had been an uptick in the number of extremists advocating "sabotage" in private conversations in Australia and abroad, it said.
It refers to "accelerationists" who want to trigger a so-called race war.
Imports of Nazi iconography hadn't slowed after a national ban on the symbols, a trend the department labelled alarming.
Items caught at the border were referred to the Australian Federal Police to consider investigation under the criminal code.
