Jack Walker, defence innovation adviser to minister Christopher Pyne, was apparently in the group of men celebrating in Speedo-style swimming trunks, after Australian Daniel Ricciardo won the Malaysian Grand Prix in Sepang on Sunday.
A spokesperson for Pyne said Tuesday the matter was being handled by the Australian High Commissioner.
"Until we have a clearer picture of the process at hand it would be unwise to comment further," Australian Associated Press quoted the spokesperson as saying.
Malaysia's local police said the men were intoxicated when the incident took place. They are under investigation for public indecency and disrespecting the Malaysian flag.
"This shows a huge lack of respect to us as Malaysians; this is stupid behaviour from foreigners who have no sense of cultural sensitivity and respect," Sepang International Circuit chief Datuk Razlan Razali told the New Straits Times.
"It embarrasses their own country as well - it gives Australians a bad name."
Australia is providing consular assistance to the men. Treasurer Scott Morrison said the arrest was a timely reminder for young people to respect the laws of the countries they visit.
"They're on their grounds, so you've got to comply," he told Australian radio station 2GB on Tuesday.