Artist Khaled Sabsabi and curator Michael Dagostino were announced a week ago as the nation's pick for the 2026 event, regarded as the most prestigious in the contemporary art world.
"We are extremely hurt and disappointed in the Creative Australia board's decision," they said in a statement.
"Art should not be censored as artists reflect the times they live in."
The Creative Australia board decided unanimously not to proceed with the artistic team, the funding body said in an announcement issued late on Thursday night.
"Creative Australia is an advocate for freedom of artistic expression and is not an adjudicator on the interpretation of art," it said in a statement.
But the board decided a prolonged and divisive debate about the 2026 picks posed an unacceptable risk to public support for the nation's artistic community, and could undermine the organisation's goal of uniting Australians through art, it said.
The decision came hours after Liberal Senator Claire Chandler told parliament that Sabsabi had featured Hezbollah leader Hassan Nasrallah in his artworks, and questioned why he should get a taxpayer-funded trip to Venice.
Sabsabi's early work includes images of Nasrallah, who led the terrorist organisation until his death in 2024, as well as images of aircraft hitting the Twin Towers in the 9/11 attacks.
Despite the decision, Sabsabi and Dagostino say they remain committed to presenting their artwork on a global platform, backed by community support.
"We believe in the vision of artists for an inclusive future that can bring us together to communicate and progress our shared humanity," they said.
"We also believe that, despite this decision, the Australian art world will not dim and/or be silent."
Five other artistic teams shortlisted for Venice have issued an open letter to Creative Australia, calling for the artists to be reinstated.
The decision was "... antithetical to the goodwill and hard-fought artistic independence, freedom of speech and moral courage that is at the core of arts in Australia, which plays a crucial role in our thriving and democratic nation," they said.
Creative Australia has also said it will review the selection process for the Venice Biennale.
Sabsabi was born in Lebanon and migrated to Australia in 1978 after civil war broke out in his home country. He is now based in western Sydney.
In 2023 he won a Creative Australia Award recognising his contribution to the nation's visual arts, and in 2024 was awarded a sought-after Mordant Family and Creative Australia Affiliated Fellowship to Rome.
Sabsabi's work is held in numerous collections including the Art Gallery of Western Australia, Campbelltown Arts Centre and Sydney's Museum of Contemporary Art.
A Sabsabi video installation from 2007 in the museum's collection features Nasrallah speaking as his image is transformed by shards of light.
In April 2024 Australia won the prestigious Golden Lion at the Venice Biennale for the first time, with Archie Moore's artwork kith and kin.
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