The ban on powdered alcohol in Victoria will not be enforced countrywide, with the Abbott government saying it is a decision for each state.
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From July 1, powdered alcohol is banned in Victoria over concerns of its misuse and abuse. The Commonwealth thinks states are best placed to deal with the substance.
The product, marketed by Palcohol, is not yet available in Australia but has approval in the US.
The company has developed flavours such as Cosmopolitan, where water is simply added to the powder to make a standard drink.
It says powdered alcohol would be perfect for people going hiking and that wanted to enjoy an adult beverage but do not want to lug around heavy bottles of booze.
But the Victorian government has concerns that it can be snuck into venues or music festivals.
While it maybe a novelty for many users authorities are worried about the potential for abuse and misuse particularly by young people, with warning some may snort the powder.
The Australian Medical Association backed Victoria's ban in March.
The Victorian government wrote to the Commonwealth urging it to join them in banning the product.
Minister for Consumer Affairs, Gaming and Liquor Regulation, Jane Garrett, said other states had backed Victoria's call for a national ban.
Ms Garrett said while the substance may be regarded as a novelty among young people, it had the potential of being misused and could be consumed in unsafe and inappropriate ways.
"Powdered alcohol is a recipe for disaster. We've taken action to keep this dangerous substance out of Victoria. We're leading the way," Ms Garrett said.
Federal Small Business Minister Bruce Billson referred the matter to the Australian Competition and Consumer Commission for a preliminary assessment following Victoria's request.
His office said the ACCC concluded that it would be premature for a national prohibition.
Mr Billson's office said he was supportive of a nationally consistent approach where regulation is necessary, but currently it did not see the need because states are in charge of alcohol regulation.
The federal government is also cautious about adding another layer of complexity to the regulatory environment.
