Under Australia's draft digital duty of care laws, tech firms risk fines if they fail to give users the option to turn off algorithms in a bid to protect them from harmful content.
Australian Prime Minister Anthony Albanese said the legislation was not about giving governments control but giving it back to people.
The US also called on Australia to address industry concerns that the "biases and preferences" of government officials do not "disadvantage independent or minority-viewpoint speech".
Australia has banned social media for kids under 16.
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The US has criticised Australia's proposal to give users the ability to opt out of social media algorithms, saying it amounts to "censorship of protected speech".
Under Australia's draft digital duty of care laws, tech firms risk fines if they fail to give users the option to turn off algorithms in a bid to protect them from harmful content.
In a submission to the proposed laws, the US embassy in Canberra said it had "serious concerns" and allowing the government to "enforce vague definitions of 'harm'" would lead to "viewpoint-based censorship".
Australian Prime Minister Anthony Albanese said the legislation was not about giving governments control but giving it back to people.
An opt-out option would "allow regulators to impose rigid, one-size-fits-all platform design requirements" on tech firms and this could affect users outside of Australia, it said.
The US also called on Australia to address industry concerns that the "biases and preferences" of government officials do not "disadvantage independent or minority-viewpoint speech".
On Tuesday, local time in New York, Albanese responded to the criticism and claims of the proposed laws being government overreach.
Australia has banned social media for kids under 16.
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