Firefighters were called to Melbourne's Adass Israel synagogue just after 04:00 local time on Friday (17:00 GMT Thursday) and arrived to find the building fully ablaze.
Community leaders told local media that "a few people" were inside at the time for morning prayers, and they had reported seeing firebombs thrown. One person was injured and the fire caused extensive damage.
In a statement, Prime Minister Anthony Albanese said the incident in Ripponlea, in the city's south-east, was "clearly aimed at creating fear in the community".
"This violence and intimidation and destruction at a place of worship is an outrage," he wrote.
"I have zero tolerance for antisemitism."
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