Athletes returning via Sydney to the state of South Australia are facing an extra two-week quarantine.
That is on top of the two weeks already required for all overseas arrivals.
The AOC said: "While other countries are celebrating the return of their athletes, we are subjecting ours to the most cruel and uncaring treatment."
They added: "They are being punished for proudly representing their country with distinction at the Olympic Games."
16 members of the Australian Olympic team are already quarantining in Sydney, the capital of New South Wales.
The government of South Australia said "the high risk of the Delta strain of COVID-19 in NSW" is the reason for the additional requirements, for which the AOC has had an exemption request turned down.
AOC chief executive Matt Carroll said in a statement: "Not only are our Olympians fully vaccinated, but they have also been living in a highly controlled bubble in Tokyo, taking the utmost precautions, tested daily over many weeks."
"We have received no explanation as to why our application on behalf of these athletes has been rejected."
The 28-day quarantine could pose a significant risk to the physical and mental wellbeing of the athletes affected, according to Australian Institute of Sports chief medical officer David Hughes.
The state of South Australia, capital city Adelaide, has a population of over 1.7m and covers some of the most arid parts of Australia.
Australia has recorded fewer than 37,000 COVID-19 cases during the pandemic and a death toll under 1,000, fewer than many other developed countries.