Immigration Minister Peter Dutton has praised an Australia Day billboard featuring two Muslim Australian girls in hijabs, and backed the wearing of Islamic dress in public.

The billboard, promoting a government-funded Australia Day event in Melbourne, was controversially taken down after threats were made to advertising company QMS.

Meanwhile, in another incident likely to offend Muslim Australians, West Australian Premier Colin Barnett said he would encourage Muslims not to wear the burqa face-covering in public, because "it's not part of our culture".

But Mr Dutton, whose previous comments have at times outraged migrant and Muslim communities, defended the billboard and the donning of Islamic dress during an interview on Thursday.