Yinon Levi, Zvi Bar Yosef, Neria Ben Pazi, Elisha Yered, David Chai Chasdai, Einan Tanjil and Meir Ettinger have been hit with travel bans and financial sanctions for allegedly participating in settler violence in the West Bank.
Mr Ben Pazi allegedly detained and tortured several Palestinians for hours, while Mr Chasdai is said to have started a riot that left one dead and 98 wounded after Palestinians had their homes and vehicles set alight.
The federal government has seen evidence of settlers attacking villagers with stones and clubs, using drones to monitor people and threatening others at gunpoint.
Australia has also imposed sanctions on religious youth group Hilltop Youth, whose members were involved in beating and sexually assaulting Palestinians.
Prime Minister Anthony Albanese said settlements in the West Bank stood in the way of a two-state solution, which would allow Israel and Palestine to exist side by side.
"We've made this decision because it's the right thing to do," he told reporters in Sydney on Thursday.
"Settlements in the West Bank are an impediment to a two-state solution, they are illegal in international law and the fact that there has been an expansion of settlements over this current period is something that the government has opposed."
All the settlers and Hilltop Youth had been sanctioned by at least one of Australia's allies.
Israel first took the West Bank, Gaza Strip and East Jerusalem in a 1967 war and has continued growing settlements in the West Bank.
But the International Court of Justice on Friday found Israeli settlements in occupied Palestinian territories were illegal and urged all states to help bring an end to the Israel-Palestine conflict.
Israel claims the territories are not occupied in legal terms because they are on disputed lands.
But many nations, including Australia, refer to the areas as "occupied territories".
Australia has made its concerns known to Israeli politicians and Foreign Minister Penny Wong has urged their government to consider any consequences to its international reputation.
The Australian Council for International Development says the government should go further and use all diplomatic tools to support a ceasefire and end Israel's occupation.
Opposition home affairs spokesman James Paterson said the government had a role in discouraging acts such as settler violence but urged it to act consistently on human rights.
"Settler violence is a crime, it's morally wrong and it is not conducive to a two-state solution," he told Sky News.
"If it is the case that the government is ... following our like-minded partners, why hasn't it done so in relation to very serious human rights abuses against the Uyghur ethnic minority in Xinjiang?"
Israel's months-long bombing campaign and ground offensive in Gaza has killed almost 40,000 Palestinians since October 7, according to the local health ministry.
Almost 90 per cent of Gazans, about 1.9 million people, have been displaced while 495,000 are facing catastrophic levels of food insecurity.
"We consider that the situation in Gaza now is catastrophic and we are deeply, deeply worried and distressed by what we are seeing," Senator Wong said.
Israel's campaign was a response to Hamas's October 7 attack, when the group, which is considered a terror organisation by the Australian government, killed 1200 people and took more than 200 hostages, according to the Israeli government.
