On Sunday, Damien O'Connor, the former trade minister and a long-serving Labour MP based on South Island, reposted an edited speech by retired US military official Lawrence Wilkerson.
"Palestinians have every right to do whatever they did on October 7th," Mr Wilkerson said in the post.
More than 1100 people were killed, mostly Israeli citizens, and about 250 hostages were taken in Hamas' surprise attack on October 7, 2023, which led to the current Israel-Hamas war.
ACT foreign affairs spokesman Simon Court said republishing the post was a sackable offence.
"Mr O'Connor thinks Hamas is cool," he told AAP.
"A Labour Party foreign affairs spokesperson has justified the largest Jewish pogrom since the holocaust ... there is no way (Labour leader) Chris Hipkins can let this extreme and hateful statement stand."
Following criticism, Mr O'Connor deleted the post, but in a party-provided statement, he said he did not resile from his views.
"It's intolerable to see civilians continue to suffer disproportionately as innocent victims in this conflict," he said, calling on the government to recognise Palestine and to support the ICJ case brought against Israel.
A Labour spokeswoman said Mr O'Connor would not face sanction after "acknowledging his mistake and removing the retweet himself".
Mr O'Connor has been Labour's strongest pro-Palestinian voice since the war began.
In December, he made an impassioned and incendiary parliamentary address, labelling Israel's military response as a genocide.
"I call upon Israel, a nation that has been set up and seeks sympathy and support because of the Holocaust and the outrageous outcomes, I call on that nation to look at itself and apply the same humanity to the people of Palestine," he said.
"Bombing and killing and slaughtering women and children that have nothing to do with this other than happening to be born as a Palestinian, that is outrageous."
The death toll in Gaza has doubled since that speech, with more than 40,000 Palestinians, including 16,500 children, killed by Israel.
New Zealand's position on the conflict has returned to the fore domestically following a vote in favour of Palestinian rights at the United Nations earlier in September.
Foreign Minister Winston Peters said the decision was based on NZ's support for international law, adding he thought Israel's retaliatory attacks had "gone far too far"
Before taking the vote, Mr Peters, the leader of NZ First, consulted with Prime Minister Chris Luxon, the leader of the National party, leaving the third coalition member, ACT, in the cold.
In his first direct criticism of Israel since the war began, Mr Luxon said Israel's military action had been "disproportionate" to the attack.
Mr Court, the strongest voice in support of Israel in parliament, disagreed with the prime minister on whether Israel's response was disproportionate.
"I don't think so when we consider that they still have many, many foreign nationals and Israelis held hostage and they've been under constant attack since October 8," he told AAP.
"Nothing that I've seen that Israel is carrying out indiscriminate bombings and killings.
"Information very strongly shows they are targeting terrorists (who are) using civilians as human shields.
"Israel has not sought to threaten or harm the people in these territories, they have sought to (deal with) the terrorist organisations.
"I personally believe Israel is on the right side of history."
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