The Australian Tamil Congress (ATC) has denied any links to terrorists, accusing Colombo of silencing political opinions critical of the government.
"This is quite a slanderous and offensive claim, its unsubstantiated and the charges are quite baseless," ATC spokeswoman Sam Pari said.
"The ATC is a properly constituted public civil society organisation and it's a transparent organisation so all our activities are known and available to Australian authorities."
Also on the blacklist is the Tamil Tigers, or Liberation Tigers of Tamil Eelam (LTTE), a separatist group in Sri Lanka.
"While on the one hand (the Sri Lankan Government) state that they have defeated the LTTE, on the other hand they use a possible resurgence as an excuse to silence critical voices and dissent within Sri Lanka and now we see abroad as well," Ms Pari said.
The order, announced recently by Sri Lanka's foreign minister, allows the government to freeze the assets and financial resources of the listed groups as well as take legal action against anyone having links with them.
Human rights groups say the Sri Lankan Government should provide evidence of the unlawful activity of specific groups and individuals or remove them from the list.
No organisation will say 'we are collecting money for terrorists'.
They say something in public and do something in private.
Thisara Samarasinghe, Sri Lanka's High Commissioner to Australia
Sri Lanka's High Commissioner to Australia Thisara Samarasinghe says the government has "evidence" that the 16 listed organisations have established links with terrorist organisations and are still pursuing the "separatist agenda of the LTTE".
"The Sri Lankan Government has adopted this method after analysing and tolerating the activities of various associations who openly display the Eelam flag and separatist map in Australia, and any parts of the country and criticise and seek separatism," he told The World.
"Sri Lanka went through 30 years of terror, and we know exactly how these organisations at that time - 80s and 90s - collected ample amounts of money, kept those money in foreign banks and they had various method of collecting this money. And this money later turned into military hardware.
"No organisation will say 'we are collecting money for terrorists'. They say something in public and do something in private.
"We have analysed such things. We have ample evidence and we will share evidence in the future."
Last month the United Nations launched an investigation into allegations of war crimes by both the Sri Lankan Government and the Tamil Tiger rebels during a 26-year civil war that ended in 2009.
However, Sri Lanka's Foreign Minister Gamini Lakshman Peiris has made it clear Colombo will not be co-operating with the inquiry.
"The view of the government of Sri Lanka is that we will not be participating in any investigation that is carried out by the office of the (United Nations) High Commissioner for Human Rights, for the simple reason that we do not accept the authority of the commissioner to do this." he said.
Australian Greens Senator Lee Rhiannon, who has been quick to defend the ATC, believes the list is a desperate knee-jerk reaction by the Sri Lankan Government in the wake of the UN vote.
"I've worked closely with the ATC as have a number of politicians in Australia; they are a reliable, very effective organisation," she said.
"The spotlight really needs to go back on to the Rajapaksa regime because it is an attempt to silence a number of organisations right at the time when the Sri Lankan government's been put in an embarrassing situation with the recognition that there should be a war crimes tribunal.
"The pressure is even mounting for an investigation in the ongoing crimes against humanity."
Australia's Foreign Minister Julie Bishop has confirmed that the ATC is not listed as a terrorist organisation under Australia's criminal code.
In a statement, Ms Bishop said the Australian Government does not consider listing Tamil diaspora organisations as conducive to reconciliation in Sri Lanka.