"We have seen something of what members of the LGBTIQ+ community experience every day. It is hateful."
3AW host Neil Mitchell spoke out against the plan earlier in the week, calling it divisive" and was a misuse of the sacred Shrine building.
"No disrespect to the gay community but the rainbow flag can be divisive," Mitchell said.
"It's not the role of the Shrine to be leading that debate, the Shrine should be above politics and political debate."
Yvonne Sillett from the Discharged LGBTQIA+ Veterans Association, who was discharged in 1988 after what she says was a witch hunt because of her sexuality, said she was disappointed by the decision to cancel the rainbow lighting.
"I was angry for many, many years so the rainbow lighting tomorrow night was going to be, finally the world can see, or Melbourne can see, we did have in out military members from the LGBTQI community," she told 9news.
The ban on gay and lesbian personnel was only lifted in 1992 by the Keating Government.