Artist Khaled Sabsabi and curator Michael Dagostino had been chosen to attend the 2026 event earlier in February, but federal funding body Creative Australia rescinded their invitation last Thursday.
The about-face followed questions in federal parliament about Sabsabi's early artworks, which reference the 9/11 terrorist attacks and listed terror group Hezbollah.
Greens Senator Sarah Hanson-Young has called for an independent inquiry, saying Creative Australia had succumbed to pressure from conservative media and politicians.
"It's an appalling capitulation that has plunged arts policy in Australia into crisis," she said.
"This is nothing short of an international arts embarrassment for Australia."
Creative Australia said Thursday its board had decided unanimously to rescind the invitation.
But artist Lindy Lee has quit her post as a director of the funding body, following a board meeting she describes as "fraught".
"Nobody except those involved can ever know how fraught and heartbreaking that meeting was," Lee said in an online statement.
"I could not live with the level of violation I felt against one of my core values - that the artist's voice must never be silenced," she said.
Another artist Garry Trinh who, like Sabsabi, works in western Sydney, said Sabsabi should not be replaced.
"No artist with any conscience should accept the show in place of Khaled Sabsabi," he posted online.
He also named each of the 14 directors on the Creative Australia board, and called for the board to be dissolved.
"The board has caused irrefutable damage to the legitimacy of the Australian Venice Biennale team," he said.
The five other artistic teams shortlisted for Venice issued an open letter to Creative Australia on Friday, calling for Sabasbi and Dagostino to be reinstated.
All this means Australia has gone from winning Venice Biennale's Golden Lion, to the possibility it may not send anyone to the prestigious art event.
In a first for Australia, artist Archie Moore and curator Ellie Buttrose won the Golden Lion for the artwork kith and kin in 2024.
Creative Australia is now facing the real prospect of an artist boycott of the 2026 Biennale.
It's an extraordinary turn of events for Australia's representation at the most highly regarded occasion in contemporary art.