The first-term senator gave a defiant interview on Sunday, declaring she had received overwhelming voter support for her stance on Palestine despite being given the cold shoulder by some colleagues.
It prompted an escalation from Prime Minister Anthony Albanese, who suspended her from the caucus indefinitely after previously being banned for a single meeting.
Senator Fatima Payman has been suspended from Labor caucus after crossing the floor. (Lukas Coch/AAP PHOTOS)
"By her own actions and statements, Senator Payman has placed herself outside the privilege that comes with participating in the federal parliamentary Labor Party caucus," a government spokesperson said.
If Senator Payman decides she will respect the caucus and her Labor colleagues she can return, but until then she is suspended from the right to participate in federal parliamentary Labor Party caucus meetings and processes."
The WA senator crossed the floor on Tuesday to support a Greens motion supporting Palestinian statehood.
On Sunday she denied she would quit the party but vowed not to back down regardless of the consequences.
"If the same motion on recognising the state of Palestine was to be brought forward tomorrow, I would (cross the floor again)," Senator Payman said on ABC Insiders.
"When I made the decision on the Senate floor to cross, I did it with the understanding that this could lead to expulsion and costing my Labor membership."
Labor Party members are expected to vote as a bloc and crossing the floor is a no-go under internal rules, but there are no mandated sanctions for defiant MPs.
Although convention dictates a person is expelled from the party room, the decision is supposed to be made by caucus rather than a leader's directive.
Senator Payman said some of her parliamentary colleagues had given her the "cold shoulder" but most were supportive.
She urged the party to embrace a diversity of views and said rank-and-file members had backed her position.
"To receive the support that I have, it's quite overwhelming, whether it be from my West Australian constituents or from around the nation," she said.
Deputy Prime Minister Richard Marles declined to say how the party would respond if Senator Payman crossed the floor again but warned that caucus solidarity would be "foremost in the minds" of her colleagues.
Deputy Prime Minister Richard Marles says caucus solidarity is fundamental to Labor MPs. (Mick Tsikas/AAP PHOTOS)
"We are all members of a team ... when we stand for election, the word 'Labor' is next to our name and that is the same for Fatima Payman as well," he told ABC's Insiders.
Senator Payman said she understood the frustrations of colleagues such as Penny Wong who had voted with the party against their conscience on social issues.
But she noted it had taken a decade to legislate same-sex marriage despite the private advocacy of Senator Wong and others.
"These Palestinians do not have 10 years," she said.
"And so that's why I will use what is within my power as a backbench senator to continue advocating for a just and lasting solution."
The death toll in Gaza is approaching 38,000, according to the Hamas-run local health ministry.
Israel launched a campaign in Gaza after designated terrorist organisation Hamas killed 1200 Israelis and took about 250 people hostage - according to its tallies - in an attack on October 7, 2023.
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