Australia announced it had listed Lebanon's Hezbollah as a "terrorist organisation" on Wednesday, extending an existing ban on armed units to the entire organisation.
Home Affairs Minister Karen Andrews said the Iran-backed Shiite group "continues to threaten terrorist attacks and provide support to terrorist organisations" and poses a "real" and "credible" threat to Australia.
Hezbollah has been designated as a terrorist group by parts of the West, although some countries have been reluctant to sanction the group's political wing, fearing it could destabilise Lebanon and hamper contacts with authorities.
Hezbollah acts as part political party, part militant organisation, and part provider of basic services to Lebanon's Shiite community.
It is the only side that has to date refused to disarm after the country's devastating civil war ended in 1990, citing the fact its stated aim is to liberate occupied Lebanese territory held by Israel.
The group slammed Australia's move in a statement on Wednesday, accusing Canberra of bowing to Israeli and American "diktats". The "decision and those that have preceded it will not affect Hezbollah's position and its right to resistance", the statement said.
The movement has been accused of fuelling Syria's civil war by sending thousands of fighters across the border to prop up President Bashar Al Assad's regime and there are accusations Hezbollah experts have helped train and organise militant groups from Iraq to Yemen.
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In 2006, it fought a devastating 34-day war against Israel that saw widespread destruction of infrastructure and more than 1,000 deaths in Lebanon, mostly civilians. At least 144 were killed in Israel, including 46 civilians.
Critics have accused the movement of killing former prime minister Rafik Hariri in 2005, and more recently of blocking investigations into the cataclysmic 2020 Beirut port explosion.
Hezbollah has had ministers in the country's cross-party, coalition cabinets since 2005 and its Loyalty to the Resistance Bloc currently holds 12 seats out of 128 in parliament.
Australia had a policy of treating the political and military arms of Hezbollah differently since 2003, when it banned Hezbollah's so-called External Security Organisation - a part of the movement's military wing that is chiefly focused on shadowy overseas operations.
Now, membership of the organisation or providing funding for it will be proscribed in Australia, which has a large Lebanese community.
Israeli Prime Minister Naftali Bennett thanked his "friend" and Australian counterpart Scott Morrison for the move.
"Hezbollah is an Iranian-backed terror organization in Lebanon responsible for countless attacks in Israel & around the world," he tweeted.
No reason was given for the timing of the move, which comes as Lebanon reels from spiralling political and economic crises.
Nearly 80 per cent of the population is estimated to be living below the poverty line.
Elections are expected in March and there is growing public anger about nepotism and corruption among Lebanon's ruling class.
The move may play well domestically for Australia's conservative government, ahead of its own elections expected next year.
Before 2018 polls, Mr Morrison made the surprise move of recognising West Jerusalem as Israel's capital, helping secure votes from a sizable Jewish community.
Matthew Levitt, a former US counter-terrorism financing official now with the Washington Institue for Near East Policy, told AFP the move was "long overdue".
In June, he testified to the Australian parliament that the previous designation was "insufficient", adding that "Hezbollah is structured and operates as a singular organisation".
"In recent years a laundry list of Hezbollah terrorist plots and illicit financial schemes have involved Australian citizens and/or activities on Australian soil," he said.
Australia also added far-right extremist group 'The Base' to a list of outlawed terrorist organisations.
"They are a violent, racist neo-Nazi group known by security agencies to be planning and preparing terrorist attacks," Ms Andrews said.
The Base, which originated in the US, became only the second far-right group to be designated a terrorist organisation in Australia after the British-based Sonnenkrieg Division was listed in August.