The prime minister joined a chorus of global leaders condemning the plan and warning it would worsen a humanitarian crisis in the devastated enclave.
After a meeting in Queenstown on Saturday, Mr Albanese and New Zealand Prime Minister Christopher Luxon issued a joint statement calling on Israel to comply with international law.
"Any attempt by Israel to escalate hostilities, including by taking control of Gaza City, would be wrong, risk violating international law, and exacerbate the human catastrophe already unfolding inside the Gaza Strip," they said.
"We urge the Israeli government to reconsider before it is too late.
"Any proposals for the permanent forced displacement of the Palestinian population must be abandoned."
Foreign Minister Penny Wong separately warned the looming military operation risked putting the lives of hostages and civilians in more danger.
Senator Wong joined Germany, Italy, New Zealand and the United Kingdom to "strongly reject" Israel's decision to launch a large-scale military operation in Gaza.
The foreign ministers said the plans would aggravate the catastrophic humanitarian situation, endanger the lives of the hostages and further risk the mass displacement of civilians.
"We urge the parties and the international community to make all efforts to finally bring this conflict to an end now, through an immediate and permanent ceasefire," they said.
Israeli Prime Minister Benjamin Netanyahu went against the advice of his military leaders to declare he intended to take military control of all of Gaza.
"We intend to," Mr Netanyahu told Fox News when asked if Israel would take over the entire territory.
Israel would eventually hand over the territory to Arab forces, which would govern it, he said.
"We don't want to keep it," Mr Netanyahu said.
"We want to have a security perimeter. We don't want to govern it. We don't want to be there as a governing body."
The move could displace an estimated one million Palestinians and has sparked international outrage.
Germany has suspended arms sales to Israel, concerned the weapons could be used in Gaza and marking a major shift in its foreign policy.
German Chancellor Friedrich Merz, a conservative whose support for Israel was a foundation of his election campaign, said he would not authorise any exports of military equipment that could be used in Gaza "until further notice".
The UN secretary general António Guterres described the plan as a "dangerous escalation" and European Commission president Ursula von der Leyen also urged Israel to reconsider.
Going a step further, Amnesty International's secretary general Agnès Callamard described Israel's latest actions as "utterly outrageous and revolting".
Ms Callamard called on the international community to suspend arms transfers, adopt targeted sanctions and terminate engagement with Israeli entities rather than "professing empty platitudes and condemnations".
"These would merely constitute another smokescreen, while allowing the horrors of Israel's genocide to unfold," she said.
The Israeli government is pursuing "total victory" in its war with Hamas, which attacked the nation's south in October 2023, killing approximately 1200 people and taking about 250 hostages.
Israel's retaliatory assaults have killed more than 61,000 Palestinians, according to the Gaza health ministry.
Some 200 people, almost half of them children, have reportedly died of starvation.
The worsening humanitarian situation has driven plans from the UK, France and Canada to call for the recognition of Palestine at a UN meeting in September, pending conditions such as Hamas returning the remaining hostages.
Australian government ministers have said the nation's recognition of Palestinian statehood is a matter of "when, not if".
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