All inmates at Barwon Prison in Victoria are required to work unless they are too ill or too old to do so.
Striking prisoners say the A$9 ($6.90; Â£5:15) a day that they have been promised in a new deal is not enough to cover living costs inside.
The state's opposition wants them to be forced to return to work, saying the public is outraged the prisoners feel they are entitled to strike.
The roughly A$9 daily rate the prisoners have been offered, depending on their jobs and hours, is an increase on their current pay of between A$6.50 and A$8.95, but it has still been criticised as inadequate by prisoners and their supporters.
"The wages paid are a lot less than in other states in Australia and it doesn't meet their increasing costs," said Brett Collins, a spokesman for prisoner advocate group Justice Action, who described the strike as "a last act of desperation".
Barwon, 75km (46 miles) outside Melbourne, is home to nearly 450 inmates, including some of the state's most notorious murderers and gang bosses.
Corrections Victoria, which runs the jail, said anyone who refused to do the work on offer, which includes gardening and maintenance, would be confined to their cells.
Inmates at a maximum security prison in Australia are on strike over wages.