Tens of thousands of passengers were affected by the unprecedented decision, which came a day after the airline's annual shareholders' meeting and clearly took the government by surprise.
It came as an embarrassment for Prime Minister Julia Gillard who was hosting a Commonwealth leaders' summit in the remote western city of Perth, 17 of them booked to fly out on Sunday with Qantas.
Unions, from pilots to caterers, have taken strike action since September over pay and to oppose Qantas plans to cut its soaring costs, as it looks at setting up two new airlines in Asia and cutting back financially draining long-haul flights.
It plans to cut 1,000 jobs and order $9 billion of new Airbus aircraft as part of a make-over to salvage the loss making international business.
"They are trashing our strategy and our brand. They are deliberately destabilising the company. Customers are now fleeing from us," Qantas Chief Executive Alan Joyce said.
The unions "are sticking by impossible claims that are not just to do with pay, but also to do with unions trying to dictate how we run our business," said Joyce, who estimated the latest move would cost the airline A$20 million a day.
The dispute is the worst Qantas has faced since 2008, when industrial action by engineers cost it A$130 million, local media reported.
Qantas' action sparked an angry response from Australia's Transport Minister Anthony Albanese.
"I'm extremely disappointed. What's more, I indicated very clearly to Mr. Joyce that I was disturbed by the fact that we've had a number of discussions and at no stage has Mr. Joyce indicated to me that this was an action under consideration," he said.
The government asked for a special labour tribunal hearing to end the industrial action by both unions and Qantas. A late night hearing was adjourned until later on Sunday.
If it orders an end to the industrial action, Qantas is expected to start flying again.
"The Qantas dispute escalated today and I am concerned about that for the national economy ... it could have implications for our national economy," Gillard told reporters.
Executives faced angry shareholders and workers at a shareholders' meeting on Friday where the company said the labour dispute had caused a dive in forward bookings. The shareholders backed hefty pay rises to senior Qantas executives.
Australian aviation analyst Tom Ballantyne told ABC Television that Qantas' decision to ground the fleet was partially designed to get the government involved.
"The airline will be irretrievably damaged if it goes on for more than a month," he said.
Qantas said it would lock out all employees from Monday night in the dispute which has affected 70,000 passengers and 600 flights on one of the country's biggest travel weekends. Qantas' budget airline Jetstar is not affected.
