He said Labor had buckled when the government started to throw around the words "national security".
"...all it took was for the government to throw around those two words, 'national security' — they throw them around like confetti — and the Labor Party went to water," he said in the Senate on Thursday.
"A weak-kneed Labor Party refused to stand up and mount a defence for individuals to ensure that their information remains private and to ensure that our software industry and our IT industry are able to continue to grow and export and develop into the industry that we know that it can be. They went to water."
Senator Di Natale said people around the globe were looking at the law, as it sent a signal to other countries that software developed in Australia was not safe.
"[They are saying] we can't trust that it hasn't been compromised and is being utilised against secure systems. [They are saying] we cannot trust Australian technology," he said.
"The government, with the support of the Labor Party, are sacrificing our IT industry. This is an export market estimated by Austrade to be worth over $3 billion, rising to at least $6 billion over the next decade.
"Let's look at what's at stake here. Encryption is critical. Encryption is critical for the safety of our digital infrastructure in our banking system, in our energy grid, in mass transit systems. Essential services in this digital economy rely on encryption and they will now be opened up for exploitation."
He said, however. the Greens would support two amendments which Labor proposed to the law — changing the definition of the terms "systemic weakness" and "vulnerability" — because "they make a shocking, dreadful piece of legislation a little less bad".
"We Greens in the Senate will always stand up against bad legislation. You may use the words 'national security'," Senator di Natale said. "Well, we believe it is in the interests of all Australians to ensure that their information remains safe and secure. We won't be cowed by your campaign to ensure that the next election is based on fear and division.
"We stand ready to vote and repeal this legislation — it won't be long before its flaws are revealed and we have to undo the damage that has been done — but we have an opportunity to stop it now, and that is exactly what we will be endeavouring to do."
Any changes to the law will only be possible in April — the Senate has nine sitting days that month and the House eight — after which an election is expected in May. The Parliamentary Joint Committee on Security and Intelligence is expected to hand down a report on its latest inquiry into the law on 3 April.