Facebook has threatened to stop Australians sharing news articles on its platform if the ACCC's draft bargaining code becomes law.
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The Australian competition and consumer watchdog's world-first news code would allow media companies to bargain with Google and Facebook over payment for news content on its platforms.
It is designed to address bargaining power imbalances between Australian news media businesses and digital platforms.
"While bargaining power imbalances exist in other areas, the bargaining power imbalance between news media businesses and major digital platforms is being addressed as a strong and independent media landscape is essential to a well-functioning democracy," the ACCC said.
But in a statement on Monday, the company said the code "misunderstands the dynamics of the internet and will do damage to the very news organisations the government is trying to protect".
"Assuming this draft code becomes law, we will reluctantly stop allowing publishers and people in Australia from sharing local and international news on Facebook and Instagram," Facebook said.
"This is not our first choice - it is our last. But it is the only way to protect against an outcome that defies logic and will hurt, not help, the long-term vibrancy of Australia's news and media sector."
Facebook also denied it benefitted from news being shared on its platform.
"The ACCC presumes that Facebook benefits most in its relationship with publishers, when in fact the reverse is true. News represents a fraction of what people see in their news feed and is not a significant source of revenue for us," the company said.
The company said it flagged plans bring Facebook News to Australia - a feature which provided users with the top headlines of the day and personalised news, and paid some publishers - during negotiations over the regulation.
"Since it launched last year in the US, publishers we partner with have seen the benefit of additional traffic and new audiences," Facebook said.
"But these proposals were overlooked. Instead, we are left with a choice of either removing news entirely or accepting a system that lets publishers charge us for as much content as they want at a price with no clear limits. Unfortunately, no business can operate that way."
The statement comes two weeks after Google warned it may withdraw free services from Australia if the code went ahead.
"(The code) could lead to your data being handed over to big news businesses and would put the free services you use at risk in Australia," Google Australia managing director Mel Silva said.
However ACCC chair Rod Sims said Google's open letter contained misinformation about the code.
"Google will not be required to charge Australians for the use of its free services such as Google Search and YouTube, unless it chooses to do so," he said.
"Google will not be required to share any additional user data with Australian news businesses unless it chooses to do so."
Tech giants are fighting against the code in order to prevent setting a worldwide precedent, which could see other countries enforce similar arrangements.
Newsrooms across the globe have been hit hard by the coronavirus pandemic, with advertising revenue drying up.
Around 180 newsrooms have closed in the first half of 2020, according to the Public Interest Journalism Initiative.
More to come
