Prime Minister Scott Morrison has thanked police for their efforts dealing with "ugly racial protests" on St Kilda Beach on Saturday, after some far-right demonstrators were seen making Nazi salutes and carrying Nazi insignia.

Key points: Police described the afternoon as "challenging", with hundreds of officers keeping the peace

Police described the afternoon as "challenging", with hundreds of officers keeping the peace Prime Minister Scott Morrison calls Australia the "most successful migrant country"

Prime Minister Scott Morrison calls Australia the "most successful migrant country" MPs criticise independent senator Fraser Anning for attending the rally

Police arrested three people after spending hours keeping participants of the rally separate from anti-fascist counter-protesters on the Melbourne beach.

A huge police operation, involving officers in riot gear and the mounted, canine and aerial branches, maintained order on the beach, despite a number of scuffles breaking out.

Police said while the rally was challenging for officers, it remained under control. ( AAP: David Crosling )

"I thank [Victoria Police] for their efforts dealing with the ugly racial protests we saw in St Kilda yesterday. Intolerance does not make Australia stronger," Mr Morrison tweeted on Sunday.

"Australia is the most successful migrant country in the world.

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"This has been achieved by showing respect for each other, our laws and values and maintaining sensible immigration policies.

"Let's keep it that way, it makes Australia stronger."

Opposition Leader Bill Shorten condemned those who "seek out attention by picking on minorities, the less powerful, by attacking in the most vile terms, normally someone who can't defend themselves".

"Australia won't achieve any of what our nation's great destiny can be by pulling the racist lever," he said on Facebook.

"The simple truth is this: we are a stronger, better country because of all those who've come across the seas and joined their story to ours."

Victoria Police Superintendent Tony Silva said the afternoon was challenging for officers, but he considered it a "very successful day".

"I certainly felt that we had it under control," he said.

"To my knowledge there was no injuries, both to any of the public and also the police."

Senator's appearance 'absolutely disgusting'

Queensland Senator Fraser Anning came to Victoria for the rally. ( Facebook: Senator Fraser Anning )

Mr Morrison stopped short of condemning controversial Queensland senator Fraser Anning by name.

Senator Anning has attracted criticism from a number of colleagues in Canberra for attending the rally.

His office has since confirmed he billed taxpayers for his flights to and from the rally from Queensland, saying he was representing constituents as crimes were also being committed by "African gangs" in his state.

The politician, who called for a return to a "European Christian" immigration system during his first speech to Parliament, was thanked for being there by rally organiser Neil Erikson.

Mr Erikson, along with co-organiser Blair Cottrell, was found guilty of inciting serious contempt of Muslims in 2017, after staging a mock beheading to protest against the building of a mosque in Bendigo in central Victoria.

But in a statement, Senator Anning denied it was an extremist event and claimed "the only people who were doing Nazi salutes were the far-left extremists", contrary to what footage from the rally shows.

"I didn't see any people there who appeared to be radicals. There were no skinheads, just ordinary working people who'd had enough," he said.

"I spoke to a diverse range of people including Vietnamese shopkeepers who were there because they were sick of being victims of these gangs. Yet they are being portrayed as 'far-right extremists' — I don't think so!"

Labor frontbencher Tanya Plibersek labelled Senator Anning's attendance at the rally "absolutely disgusting" and called on the Government not to make deals with him to pass legislation.

"Scott Morrison has criticised the rally — I'm very pleased he's criticised the rally," she said.

"He also has to criticise Fraser Anning … for attending a rally that's been organised by people with a known record of seeking to divide Australians, not bring them closer together."

Independent senator Derryn Hinch and the Greens' Sarah Hanson-Young criticised Senator Anning on Twitter, while a number of federal Labor politicians also came out against him.

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Labor MP Tim Watts wrote the far-right protesters "hate the diverse, inclusive country that Australia has become" and that their objective was "to intimidate minorities".

"We need to be clear about the contempt and revulsion that we feel, as a community and a nation, towards these people," Mr Watts posted on Facebook.

"None of us should be silent in the face of this threat."

'We need leadership to call it out'

Police made three arrests in St Kilda on Saturday. ( AAP: David Crosling )

Newly elected MP Kerryn Phelps praised demonstrators who showed up to oppose the rally, saying the country's political leaders needed to be more proactive in speaking out against a rise in anti-Semitic and neo-Nazi behaviour.

"I think we should call out this rally for what it is. It is a demonstration by a neo-Nazi group where you're seeing 'heil' salutes," she said.

"We know there's a rise of Nazism in countries, particularly in Europe.

"I think we should be very concerned about this in Australia. We need leadership to call it out for what it is — right-wing extremism."

Federal Immigration Minister David Coleman also tweeted to condemn the rally "in the strongest terms".

"There is no place for racism in our nation. We are the most successful multicultural society in the world, and we have achieved that by working together to build a stronger Australia," he tweeted on Sunday morning.

Police arrested three people in St Kilda on Saturday. ( AAP: David Crosling )

'It will not define St Kilda'

There is already an enhanced police presence at St Kilda Beach this summer, with Victoria Police launching Operation Sandsafe in early December to combat a number of violent incidents on the foreshore.

But Port Phillip Mayor Dick Gross said scenes like the one on Saturday would not define the suburb.

"These incidents will always and legitimately make headlines — this is an example of racial hatred that will inevitably attract headlines, but it will not define St Kilda," he said.

The rally followed an incident on December 29, where Mr Erikson led a group of people filming young men of African appearance who were playing soccer.

The group refused multiple requests by police and the footballers to stop filming, with the video then showing a scuffle between one of the men from the soccer-playing group and officers.

Those filming could be heard saying "yes, yes, yes" and running towards the altercation with the camera.

Capsicum spray was used and a man was seen vomiting as he was held on the ground and arrested. He was expected to be charged on summons with assaulting police, resisting arrest and failing to move on when directed.