One of Australia's greatest rugby coaches says Israel Folau is a "massive example for good" and has slammed Rugby Australia for ostracising him.

Folau's multi-million dollar contract was officially terminated on Friday after a three-person panel found his social media posts, which hit out against gay and transgender people, a high-level breach to the code of conduct.

Bob Dwyer, who guided the Wallabies to their first World Cup triumph in 1991, said the Folau disaster had been "incredibly badly handled" by Australian rugby.

He told the Sydney Morning Herald that Folau had got it wrong with his religious-based media post saying homosexuals and others would be going to hell.

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Bob Dwyer says Rugby Australia has got it all wrong. Photo / Getty
Bob Dwyer says Rugby Australia has got it all wrong. Photo / Getty

But apart from that, RA should have recognised the greater good he stood for even though Folau had erred in choosing to "confront and affront" people.

"I thought it was incredibly badly handled by the ARU. I would have thought you could have reached a conclusion that didn't look like this," Dwyer said.

"If it was me, I'd be saying I can't disagree with anything you've said, Izzy, because you've quoted the Bible, and what I can say is we think you're a very good person. We think for 95 per cent of your behaviour and words you're an absolute credit to the game and our society.

"However you can't expect to be an example for change in our society if you want to confront and affront people. As soon as you try to do that, you'll have the opposite reaction. That's not good enough in a team game.

"But I think he's a massive example for good in our society. At a time in sports when we are seeing some of the worst behaviours in sport, we've got this guy who's the exact opposite. I think it would be a sad, sad day if he's lost to Australian sport."

Over the weekend, Rugby Australia CEO Raelene Castle admitted there were no winners out of the Israel Folau situation but said that the organisation had to take a stand.

Speaking in a wide-ranging interview on Rugby.com, Castle said it had been a difficult time for everyone.

"I think it is an exaggeration to say it will imperil the game's finances — I don't believe that to be true," she said.

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"Certainly I believe this is money that we could be spending on the rugby community and that's disappointing. Every dollar that we spend on legal fees is a dollar that we don't spend in the community.

"What I would say is that Israel also knew the implications. The first time around when he posted the first time and the implications for the wider game was something the tribunal took into consideration, both financial and also reputation from a disrepute perspective, when they got to the stage where they decided termination was the only option."

Folau has until 5pm [7pm NZ time] on Monday to appeal against the loss of his lucrative Rugby Australia contract and is expected to brush the option of a second hearing to appeal a termination decision, and instead head straight to court.