The One Nation leader, who wants a royal commission into Islam, used an appearance on the ABC's Q&A program to warn Australians are too scared to walk the streets because of the threat of terrorism.
"We are a Christian country and I don't believe that Islam is compatible with our culture and our way of life," Ms Hanson said on Monday night.
"People in Australia are in fear because they can't walk in the streets. They're in fear of terrorism which is happening around the world. Why? Because of Islam."
Newly promoted cabinet minister Matt Canavan believes everyone elected to parliament deserves respect, including Ms Hanson.
But he disagreed with her views.
"There are individuals in our community that, yes, subscribe to the Muslim faith and want to do us damage and we need to have a strong strong security, border protection and other policies place to deal with those issues," he told Sky News.
"But don't put people into groups - that is not the basis of our society."
His frontbench colleague Dan Tehan denied Ms Hanson's comments would make it harder to engage with the Muslim community.
He said the government needed to keep doing what it had been to combat terrorism.
"You have to demonstrate through your actions what you think will work, not be distracted by other people with other opinions," he told ABC radio.
Education Minister Simon Birmingham, who was also a guest on the show, flatly rejected Ms Hanson's calls for a royal commission and a ban on Muslim immigration.
More than 200 anti-Hanson protesters rallied outside the ABC's Ultimo studios while the show was under way, with five men arrested but since released from police custody.
A NSW police spokeswoman said the men were removed from the area to prevent a breach of the peace but no formal charges were laid.
Q&A audience member, Cronulla man Khaled Elomar, said he explained Islamophobia to his son by showing the 11-year-old videos of Ms Hanson.
"You are creating a dysfunctional country by isolating a religion, 20 years ago isolating a race, and if you keep on going down this track I will fear for my wife's life, I will fear for my kid's life," he said.
Ms Hanson was asked by host Tony Jones if she could offer the young boy hope that she considered him an equal citizen, replying: "He is an equal citizen as long as he wants to give his loyalty to this country and is not torn by an ideology that has hatred towards the west or infidels."
.@PaulineHansonOz & @samdastyari discuss the moratorium on Muslim migration #QandA https://t.co/5vK7cdLwm6 — ABC Q&A (@QandA) July 18, 2016
Labor Senator Sam Dastyari accused Ms Hanson of pedalling "hurtful, painful" policies which he took personally.
Ms Hanson was surprised to learn Senator Dastyari was Muslim.
"You're a practising Muslim? This is quite interesting ... I didn't know that about you," she said.
Senator Dastyari, who was born to pro-democracy activists in Iran, told 3AW he wasn't a practising Muslim and he wasn't sworn into parliament on the Koran.
He said Ms Hanson seemed "flabbergasted" she was sitting next to someone who was a Muslim.
Senator Dastyari said he didn't speak to Ms Hanson much after their television appearance together.
"I'll take up the opportunity in the Senate, we're going to be together for the next six years," he told 3AW on Tuesday.
