Treasurer Josh Frydenberg has attacked the Malaysian PM for his history of anti-Semitic remarks and describing Jews as “hook-nosed” in an extraordinary response to Mahathir Mohamad’s claim that moving Australia’s embassy to Jerusalem could encourage terrorism.

In a strong signal that some senior cabinet ministers continue to support the move, Mr Frydenberg, who is Jewish, said Australia should not take lectures from overseas leaders about our own foreign policy.

Later on Friday, Prime Minister Scott Morrison backed Mr Frydenberg, warning: “Australia sets foreign policy in Australia. Nobody else.”

“I think what Josh said today was filling in the history of his record on various issues over time. I think those issues are well known and his contribution to the public record on those topics are well known,’’ Mr Morrison said in Darwin.

“Australia decides foreign policy in Australia … I do not resile one inch from the fact that I think this is an issue that the Australian government should be able to consider.”

Mr Morrison said he had ordered a review into the idea. It will be complete by Christmas. 

“I’ve relayed that to our partners in the region. Make no mistake. I will not have our policy dictated by those outside the country. I respect and listen to their views and have in the last few days, but Australia determines Australia’s foreign policy.”

On Thursday, Dr Mahathir publicly confirmed that he told Mr Morrison directly that moving Australia’s embassy from Tel Aviv to Jerusalem could “add to the cause of terrorism”.

In response, Mr Frydenberg said the Malaysian leader’s history of anti-Semitism could not be ignored. 

“Dr Mahathir does have form … he’s made a number of derogatory comments in the past about Jews being hook-nosed, he has questioned the number of people that have been killed in the Holocaust and he also saw the banning of Schindler’s List – the movie about the saviour of millions of people by righteous gentiles through that horrible period in world history,” Mr Frydenberg told the ABC.

“Australia will make its own decisions based on its national interest.”

“We’re absolutely right to commence this process and call out some of the double standards that have been applied by countries, including in our region, but also more broadly afield against Israel and its history and its values.”

Last month, Dr Mahatir, 93, described Jews as “hook-nosed” and blamed them for causing trouble in the Middle East.

“If you are going to be truthful, the problem in the Middle East began with the creation of Israel. That is the truth. But I cannot say that,” he told the BBC’s Hard Talk.

Asked why he described Jews as “hook-nosed” in his book The Malay Dilemma, he said: “They are hook-nosed. Many people called the Malays fat-nosed. We didn’t object, we didn’t go to war for that.”

Former foreign affairs minister Bob Carr tweeted that he was surprised Mr Frydenberg had openly attacked a foreign leader:

Can't believe @JoshFrydenberg has taken it on himself to attack Malaysian PM.Fed Treasurers don’t assail leaders of friendly countries.What got into him?He also defended joining Guatemala & Trump in shifting embassy. How on earth is this in AU national interest?How on earth?(2/4)

— Bob Carr (@bobjcarr) November 15, 2018

But Mr Frydenberg hit back, slamming Mr Carr’s record in government.

“Bob Carr is the least well-regarded foreign minister in Australia’s history. Bob Carr is better known for his steel-cut oats and his first-class pyjamas and flying around the world picking up anecdotes for his own memoirs than for anything he did as foreign minister,” he said.

“He’s a forgettable foreign minister, Bob Carr, who comes to the role with his own prejudices. It’s up to Bob Carr – does he agree with Dr Mahathir’s comments?,” he said.