Prime Minister Tony Abbott's comments that Australia was "unsettled" before British "foreign investment" arrived in 1788 were out of step with a great number of Australians who recognised Aboriginal history, Illawarra Aboriginal leader Sharralyn Robinson said on Friday.
Mr Abbott surprised many with his comments, made in a speech about foreign investment on Thursday night.
"Our country is unimaginable without foreign investment," Mr Abbott said.
"I guess our country owes its existence to a form of foreign investment by the British government in the then unsettled or, um, scarcely settled, Great South Land."
Ms Robinson, the acting chief executive of the Illawarra Local Aboriginal Land Council, said more than 40,000 years of Aboriginal history needed to be remembered.
"It's very disturbing to think we've got a Prime Minister who isn't aware of what was here prior to invasion," she said. "This country was very settled. We had our laws in place, we had our Parliament houses, our opera houses, our hospitals, our homes."
Ms Robinson said most Australians did not cling to the myth that Australia was uninhabited.
"He's come out and said such a ridiculous statement - was it a slip of the tongue? We all have those. But if it wasn't, then he needs to go out and do what he said, spend a week living in an Aboriginal community, let the elders teach him."
Mr Abbott's comments exposed him to criticism that he had not moved on from the old doctrine of terra nullius - nobody's land - that was dumped by the High Court last century.
Northern Territory Labor senator Nova Peris said Mr Abbott's comments were "highly offensive, dismissive of indigenous peoples and simply incorrect".
"British settlement was not foreign investment. It was occupation," Senator Peris said.
The chairman of the Prime Minister's indigenous advisory council, Warren Mundine, who was in the audience to hear Mr Abbott's speech, said the remarks were "silly".
"If I was him, I would have said that the nation was built on foreign investment since 1788 and left it there," Mr Mundine said. "We all know Australia was full of people living here when the British arrived."