The federal government followed through on its threat to remove the power after the council's decision to stop holding citizenship ceremonies on Australia Day prompted a furious political backlash.

Mr Turnbull rose in parliament to attack the council after it voted unanimously on Tuesday night to no longer refer to January 26 as Australia Day and to cancel citizenship ceremonies on that date from next year.

Australia Day has been a national public holiday since 1994, marking the arrival of the first British ships in 1788. It has also become known as Invasion Day among many Indigenous Australians.

During a week in which the issue of citizenship has been hotly debated, Mr Turnbull said Australians should be proud of celebrating Australia Day and should get behind it.

While he acknowledged white settlement had been "tragic" for Indigenous Australians, he said January 26 was about recognising the "greatness of our achievements".

He described the council decision as "utterly out of step with Australian values".

"They are seeking to take a day which unites Australia and turn it into one which divides us," he said.

"To change the date of Australia Day would be to turn our back on Australian values, on the great achievement of 24 million Australians here in the greatest, most successful multicultural society in the world."

The federal government issued its ban under the Australian Citizenship Act on Wednesday afternoon, meaning Yarra councillors could no longer receive a pledge of commitment at a citizenship ceremony.

The council had been warned that any push to cancel ceremonies on Australia Day would be seen as a significant breach of the citizenship protocol, Assistant Minister for Immigration and Border Protection Alex Hawke said.

Prospective citizens will be sent to ceremonies held by neighbouring councils.

The Department of Immigration and Border Protection will also step in to hold ceremonies within Yarra's boundaries if needed, including on Australia Day next year.

Mr Hawke also said he had written to the Minister for Local Government and Territories, asking for an examination of funding provided to Yarra Council for citizenship ceremonies.

He said the federal government would not tolerate councils using citizenship ceremonies to campaign against Australia Day being celebrated on January 26.

"I am surprised and disappointed that the City of Yarra has chosen to pursue this divisive approach," he said.

Yarra mayor Amanda Stone said she had not expected the federal government would follow through on its threat to ban the council from holding citizenship ceremonies.

She said she would have preferred that the minister pick up the phone.

"It's unnecessary and an overreaction," she said. "We asked for a discussion but he's chosen to act instead. It's a shame."

Not being able to host citizenship ceremonies in Yarra was disappointing, Cr Stone said, as the council was proud of its diverse community. The area is home to a strong Vietnamese population.

However, she stood by the decision, saying that there had been a lot of support.

"People feel it's a very brave move, it's overdue," she said. "I think the bottom line is you have to listen to your community.

"It's not unanimous, very little is, but there's a growing movement around [changing] the date. These are conversations we've had for a long time with our Aboriginal community, we just haven't acted on them."

The council has held citizenship ceremonies throughout the year, the first of which takes place on January 26, according to its website.

Opposition leader Bill Shorten was also against the move, saying that reconciliation was "more about changing hearts and minds" than moving a public holiday.

"It is a day of citizenship ceremonies, of looking to the future, of celebrating all our cultures and faiths and traditions," he said.

Victorian Premier Daniel Andrews said the move from the council was unnecessary.

"You can celebrate what modern Australia is and citizenship ceremonies are a big part of that - it's truly a magical thing," he told the ABC.

"I don't think anybody should be trying to diminish that.

"I think we get the balance right [on Australia Day]. We respect the traditional owners of our land, but we then get on in a really unified way."

Victorian opposition leader Matthew Guy said the decision was symbolic of a local government that wasn't focused on its real job.

He said if Yarra Council didn't "pull its head in" then they should be sacked by the state government.

"Australia Day is a day of celebration and inclusion and these councillors are using it to drive a wedge through our community," he said.

Lord mayor Robert Doyle said the City of Melbourne would "absolutely not" be following in Yarra Council's footsteps.

He said the "privilege" of holding a citizenship ceremony on January 26 was not something he would give up lightly.

"I think that is a divisive debate; it is also a settled question. What other councils do is a question for them," he said.

"We always have the most senior Wurundjeri elder Aunty Joy who does provide a Welcome to Country in the most generous spirited way on Australia Day each year." he said.