The Coalition has also lashed the Human Rights Commission's decision to shortlist the centre's founder, Stuart Rees, for its top award.
Professor Rees defended the centre's decision not to deal with Israeli academic Dan Avnon on the basis of his nationality in a letter to The Australian on Friday.
"If the only reason that Professor Avnon has been excluded from consideration is because he's Jewish and from Israel, then he or Sydney University would have potentially a good case against the centre and its head," acting opposition legal affairs spokesman Christopher Pyne said yesterday.
He warned the centre's policy was holding Sydney University "up to international ridicule".
Opposition higher education spokesman Brett Mason also expressed concerns, saying the BDS policy "promotes just the sort of prejudice and conflict the centre should be fighting".
A spokesman for the university dismissed the potential for action under the Human Rights Act as "hypothetical", saying that other staff and schools were keen to work with Professor Avnon.
Higher Education Minister Chris Evans did not respond to requests for comment.
Mr Pyne slammed the Human Rights Commission for shortlisting Professor Rees for its Human Rights Medal, to be awarded at a lunch in Sydney today.
"The Human Rights Commission needs to explain how a person who defends BDS could be considered for one of its awards in spite of the BDS movement being responsible for a narrowing of understanding between peoples rather than a settling of differences between peoples," he said.
Human Rights Commissioner Gillian Triggs said nominations came from the community.
"We . . . don't take any position . . . on the views of the Sydney Peace Foundation in relation to Israel," she said. "We see this as a matter of freedom of expression."
The row raged as members of the Palestine Action Group Sydney, the Socialist Alliance, Socialist Alternative and at least one member of the Greens Party yesterday went on a "walking tour" of businesses they say back Israel in Sydney's Pitt Street Mall.
Organiser Patrick Langosch said he and about 14 other protesters wanted to raise awareness about Israel's "illegal" behaviour in Palestine. "It's a Christmas retail message telling people not to support the Israeli apartheid."
Not many in the mall appeared to hear it, despite the presence of a megaphone, and some who did abused the group.
The rally ended after the group walked the mall, targeting businesses such as Estee Lauder, The Body Shop, Motorola and Westfield -- owned by businessman Frank Lowy -- under the watch of two police officers who occasionally intervened to calm frayed tempers, mostly from annoyed shoppers trying to listen to Christmas carols.
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