Roughly 300 refugee supporters were outside the Department of Home Affairs on Tuesday to mark 100 days of protests calling for asylum seekers to be granted permanent visas when it was disrupted by about 20 men wearing black and covering their faces.
Aran Mylvaganam from the Tamil Refugee Council said the men marched towards their encampment with an offensive banner and shouted other slogans such as "Hail victory", "White power" and "Australia for the white man".
"It was quite a terrifying scene," he told AAP.
Mr Mylvaganam said asylum-seeker advocates initially chased the men away before police formed a line to separate the groups.
The Tamil Refugee Council's Aran Mylvaganam described the protest turning into a "terrifying scene". (Daniel Pockett/AAP PHOTOS)
Video shows police using capsicum spray to push back the neo-Nazis.
"The groups dispersed and there were no arrests or reports of injuries," Victoria Police said in a statement.
"Police will assess the circumstances surrounding the demonstration and review vision of the incident and people involved."
Mr Mylvaganam criticised the police response, saying some advocates were subjected to the same treatment as the masked men.
"They pepper-sprayed some of our supporters well before they pepper-sprayed the neo-Nazis who were delivering hate speech," he said.
"One of our speakers ... who is a Palestinian activist, she was pepper sprayed."
The clash comes after dozens of white supremacists descended on the small NSW-Victorian town of Corowa on October 12, shocking locals.
The clash in Melbourne comes after white supremacists descended on Corowa on October 12. (HANDOUT/THE NOTICER)
Premier Jacinta Allan slammed the latest demonstration, labelling the men "disgraceful cowards".
"They hide behind masks and they absolutely do not represent any single part of this great state," she told reporters on Wednesday.
"Their behaviour is disgraceful. It's unacceptable."
In September, Victorian Police Minister Anthony Carbines foreshadowed a crackdown on people using masks and goggles to hide hide their identity at protests following violence at Melbourne's Land Forces expo.
Ms Allan was not aware of how that work was progressing, though claimed police already had the tools and the powers needed to respond.
Legislation to strengthen anti-vilification laws is expected to be introduced to Victorian parliament before the end of 2024.
Opposition Leader John Pesutto, who is being sued for defamation over comments he made about ousted Liberal MP Moira Deeming after a rally that was gatecrashed by neo-Nazis, said people should not be able to wear masks at certain protests.
"When somebody turns up as a Nazi with a mask on, they're not wanting to be identified," he said.
"The reasons they're not wanting to be identified is the behaviour they're engaging in is at best extremely odious and at worse potentially an incitement to violence."
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