Australia Post chief executive Christine Holgate has been asked to stand aside pending an investigation into $12,000 worth of luxury watches gifted to senior executives.
Ms Holgate on Thursday confirmed four $3000 Cartier watches were handed out as a reward for clinching a deal to do banking at post offices.
Prime Minister Scott Morrison said the gifts were disgraceful and appalling, in a stunning condemnation after Ms Holgate was informed of the government's response.
"She's been instructed to stand aside and if she doesn't do that, she can go," he told parliament.
Mr Morrison said the government took immediate action to launch an investigation into the lavish gifts.
"We are the shareholders of Australia Post on behalf of the Australian people," he said.
"As any shareholder would in a company raise their outrage if they had seen that conduct, by a chief executive, management or the board, they would insist rightly on the same thing."
Communications Minister Paul Fletcher said boards and managers of government business enterprises needed to take great care with taxpayers' money.
"I was as shocked and concerned as everybody else to discover this," he told parliament.
"This is a matter which the Australian government take seriously."
He said the investigation would be focused on how public money was spent, despite Ms Holgate earlier claiming Australia Post was a "commercial organisation".
"They were a small number of senior people who'd put an inordinate amount of work in," she told a Senate estimates hearing in Canberra on Thursday.
"They did receive an award on behalf of the chair, myself and the board."
Labor senator Kimberley Kitching grilled chief financial officer Rodney Boys, who couldn't say how the watches were paid for.
"You spent $12,000 on watches and you can't tell me what credit card you put it on?" she said.
Mr Boys said the organisation took great care of $7.4 billion worth of expenses.
Senator Kitching bristled at the extravagant gifts.
"Do you, Ms Holgate, consider it appropriate to use taxpayers' money for Cartier watches for already highly remunerated Australia Post executives?" she asked.
But the chief of the government business enterprise said public money was not used.
"We do not receive government funding," Ms Holgate said.
"We are a commercial organisation. It was a recommendation from our chair that these people get rewarded."
Senator Kitching lashed the board for failing to appear at estimates, describing them as invisible men and women.
Ms Holgate did not receive a watch but senior executive Gary Starr, who also appeared before the committee, did.
Mr Starr was not wearing the watch and denied he had given it away as a gift.
Australian Associated Press
