Abbott, who was ousted by Malcolm Turnbull in a Liberal Party coup in September but remains in politics, urged the West to "be ready to proclaim the clear superiority of our culture to one that justifies killing people in the name of God".
The staunch Catholic also urged Australians to stop apologising for their values.
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"Islam never had its own version of the Reformation and the Enlightenment or a consequent acceptance of pluralism and the separation of church and state.
"Fortunately there are numerous Muslim leaders who think their faith needs to modernise from the kill-or-be-killed milieu of the Prophet Mohammed."
Abbott, who briefly trained as a priest before entering politics and was once dubbed the "Mad Monk", added that Australians should stop being "apologetic about the values that have made our country as free, fair and prosperous as any on Earth".
His rhetoric coincided with US Republican presidential front-runner Donald Trump sparking global outrage after a call for Muslims to be barred from entering America.
Labor opposition Leader Bill Shorten slammed the remarks as "entirely counterproductive".
"Inflammatory language undermines efforts to build social cohesion, mutual respect and has the potential to harm the efforts of national security agencies to keep Australians safe," he said in a statement.
Australian Human Rights Commission chief Gillian Triggs also criticised Abbott's tone.
"We have to be extremely careful before we make blanket assertions about Islam as a religion, or the Muslim people in Australia," she said.
"Many of those (Muslims) I meet in my job, I know them to be really remarkably peaceable and good family people. So I think we need to work on understanding why that tiny number... has become so radicalised."
Prime Minister Turnbull told national radio Abbott was entitled to his opinion but made clear the vast majority of Muslims were appalled by violent extremism.
"The extremism of ISIL or Daesh, these terrorists, is utterly rejected by the leaders of the great majority of Muslim nations," he said, referring to the Islamic State group.
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