Home Affairs Minister Peter Dutton says refugees who could go to the United States are refusing to do so because of Australia's medevac laws.
It comes after Assistant Treasurer Michael Sukkar said changes to the laws are "ridiculous" and are just opening more holes in legislation that the Morrison government wants to repeal.
But shadow treasurer Jim Chalmers says the government is just trying to pick an argument to distract from its "substantial" economic failures.
A Federal Court ruling last week reignited the political debate over the laws that allow people to be transferred from offshore detention to Australia on medical grounds, after deciding doctors didn't need to see a patient face-to-face for approval.
"I think that is a very good example of why these laws are completely unworkable, impractical and, I don't think ultimately, in our national interest," Mr Sukkar told Sky News on Sunday.
He said the laws - that were forced through the parliament earlier this year by the Labor opposition and crossbenchers - had done nothing to enhance the integrity of Australia's borders.
Mr Dutton said people who could go to the United States under a resettlement deal were refusing "because they believe that they can come to Australia under Labor's Medevac law".
"Let's be serious about what the people smugglers are hearing and what the people in Manus and Nauru are hearing, because I'm getting people now who won't engage in the US process," Mr Dutton told reporters on Sunday.
He said 250 cases were currently being considered by doctors under the medevac process.
However, a report in the Nine newspapers says the Medevac expert panel that Mr Dutton warned would open the "floodgates" and admit sick refugees and asylum seekers to Australia has been used just nine times since the law was passed.
The vast majority of all Medevac applications have been waved through by the government before reaching the final medical body.
The government has approved 31 medical transfers since the laws were introduced four months ago, while nine were rejected, which the expert panel overturned two and upheld seven, the report said.
Dr Chalmers said the minister is picking an unnecessary fight to try to distract from the substantial economic failures under the government's watch.
He said it is no coincidence the Reserve Bank has cut the cash rate to a record low, economic growth is its slowest in a decade, productivity is down, consumption is weak, wages are stagnant and underemployment is rising.
"All of these sorts of things and all of a sudden Peter Dutton pops up and wants to pick a fight over the medevac laws, which are working," Dr Chalmers told the ABC's Insiders program.
"There's only been a couple of instances where people have come here on the advice of doctors, that the ministers didn't agree with. I think that that just shows what the government is up to here."
Australian Associated Press