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The auction in Bredbo, near Queanbeyan, on Saturday features Nazi medals, helmets, jewellery and the Hitler portrait.
Spokesman for the auction company Don Mahoney defended the sale of the items, saying they formed a small part of a large sale of military items.
He said some Australian politicians were known to collect Nazi memorabilia.
"I can't mention names, but you would be shocked, I have sold Nazi memorabilia to solicitors, bank managers, accountants, politicians over the years," Mr Mahoney told AAP.
"They collect it because it's part of history."
But NSW Jewish Board of Deputies chief executive Viv Alhadeff questioned why the items needed to be auctioned off.
"The Nazis were pure evil and grotesque," Mr Alhadeff told AAP in a statement.
"We question why an auction house and its buyers would think that that's worth celebrating by trading and profiting from."
Mr Mahoney said the items formed part of history, and he didn't believe they were bought by current neo-Nazis.
"It's terrible what happened to the Jewish people, absolutely shocking, but it happened in Europe, I'm fifth generation Australian, I care what happened to Australians," he said.
"The people who I tend to find hype it up, which is pretty sad, I find it's nearly always Jewish people.
"People drive Mitsubishi cars in Australia, Mitsubishi airplanes bombed Australia and yet we're supposed to go 'oh no it's terrible to sell a Swastika but its ok to sell anything Japanese'."
The NSW National Party recently expelled about 20 young members amid an investigation into the infiltration of neo-Nazis into the organisation.
Anti-Defamation Commission chairman Dvir Abramovich said the sale of the Nazi memorabilia was outrageous.
"At a time when white supremacist and neo-Nazi groups, and racist violence are on the rise in Australia, this auction is particularly disturbing," Dr Abramovich said in a statement to AAP.
A public post featuring photographs of the Nazi items on Facebook drew both interest and criticism.
"Anyone who would want the Nazi rubbish should seriously look at their morals," one person commented.