A proposal by an Australian Islamic group to allow "safe spaces" for young Muslims to discuss "inflammatory" issues has sparked a row.
The Islamic Council of Victoria (ICV) said such forums enabled young people's opinions to be "respectfully and intelligently debated and challenged".
But State Premier Daniel Andrews said he was "very troubled" by the idea of a space where people "could be radical".
Victoria was rocked by a suspected terror attack earlier this week.
Gunman Yacqub Khayre killed a man, wounded three police officers and took a woman hostage during a siege at an apartment building on Monday night. He was later shot dead by police.
Australia has prevented a number of extremist attacks on home soil in recent years, and has been on alert amid fears over the return of Australians fighting for Islamist militant groups in Syria.
The ICV, which says it represents some 200,000 Muslims in Victoria, says the community is suffering mental health and other problems because of the widespread suspicion it faces.
It recommends, to a parliamentary inquiry into freedom of religion, funding a number of community-led initiatives - saying financial resources at the moment are concentrated mainly on national efforts to counter violent extremism.
ICV spokesman Adel Salman said they did not consider the "safe space" proposal controversial, because it is a practice that is already used to help young people in countries around the world.
"This is about good practice because the youth require an avenue to express their views in a safe environment... where they feel their views are valued, where they can be respectfully challenged and counter views presented," he said.
He said such spaces would be "conducted with experts who are familiar with the methodology, and understand the way the conversation can be guided".
And he criticised headlines which called the proposal "rage space" and "hate space", saying the media had misconstrued what they were asking for.
But Premier Andrews ruled out any possibility of funding such an initiative.
"I am very troubled by the suggestion that we might have a space where people could be radical as part of a de-radicalisation programme. That makes no sense to me whatsoever".