The 30 or so people dressed in all black and repeatedly performing the Nazi salute later identified themselves as members of the Australian neo-Nazi group the National Socialist Network.

The salute was used in Nazi Germany and is banned in Germany, Austria, Poland and Slovakia.

The protest against transgender rights was led by the British anti-trans rights campaigner Kellie-Jay Keen-Minshull, also known as Posie Parker.

Extremism expert and associate professor at Deakin University Dr Josh Roose told ACM far right groups maintained extreme views on gender, some of which aligned with anti-trans activism.

"The far right have a very hardline conservative approach to gender [where] they view the natural role of women as in the home, as housekeepers and as subservient to men, effectively as breeders producing the next generation, and men as heads of the household," he said.

"Anything that falls outside of that spectrum is considered not only amoral in their world, but it's also considered an anomaly or an abomination and worthy of violence. There is a deep hatred amongst the far right for LGBTQ communities."

Victorian Liberal MP Moira Deeming attended the rally. State Liberal leader John Pesutto said he would move to expel Ms Deeming from the party room for her involvement in the rally.

The protest shocked the state and comes after a rise in anti-semitic incidents.

Chair of the Anti-Defamation Commission Dr Dvir Abramovich told ACM the swastika and the Nazi salute were inextricably linked to the horrors of the Holocaust.

"A democracy is not only about the rights that we have but about what we are willing to tolerate," he said.

"Performing the Hitler salute is a call for murder, and for a Holocaust survivor, seeing it tears a hole in their heart and is as threatening as being held up with a gun.

"There is no perfect cure for the disease of extremism, but this law is a first good step."

According to statistics by the Executive Council of Australian Jewry, anti-semitic incidents in 2022 were at their highest in a decade, with 478 reported incidents or an increase of more than 40 per cent over the past two years.

Dr Roose said economic hardship, distrust of government, and white supremacist social media "echo chambers" were driving people to the hateful ideology.

"There's an increasing popularity of far right narratives, particularly in rural regions and towns.

"So we're seeing in rural Australia that people are being pushed out of their towns towards the fringes, very often people who grew up in these towns can't necessarily pay for a house, in the town they grew up in," he said.

"For the last 10 or 15 years, there's been significant decline in socioeconomic equality in Australia. And we're seeing that for many there's a sense of distrust in government, there's a sense of distrust in institutions. And more broadly, there's a vacuum that's been filled by social media."

Victoria became the first Australian state to ban the Nazi swastika last year. The penalty for displaying the symbol in public now carries a fine of $22,000, 12 months imprisonment, or both.

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Displaying the swastika is also banned in NSW. The Queensland government recently promised to make it illegal to display Nazi swastika tattoos as part of its ban on hate symbols.

Other states and territories, including the ACT, Tasmania and most recently, Western Australia, are now taking similar steps.

Victoria's attorney-general, Jaclyn Symes, said the Andrews government would take active steps to ban the gesture. She described the behaviour of Neo-Nazis as "disgraceful and cowardly".