The woman allegedly made the banned gesture at the Victoria Police Academy at Glen Waverley, in Melbourne's southeast, on successive days this week.
The 65-year-old family violence centre instructor is accused of approaching two employees on Tuesday afternoon and performing the salute, as well as uttering the words "heil Hitler".
In a post-family violence scenario debrief with a recruit squad and another instructor, the sergeant again allegedly performed the salute and said "heil Hitler".
"(It was) completely out of context," Victoria Police Chief Commissioner Shane Patton told reporters.
The sergeant, who has worked in the force for 40 years including roughly 16 years at the training academy, was suspended on Friday with pay.
She was being interviewed on Saturday morning as part of a professional standards command investigation into criminal offences.
Victoria Police Chief Commissioner Shane Patton says he's disappointed and angry. (Joel Carrett/AAP PHOTOS)
In Victoria, performing the Nazi salute in public can carry a sentence of up to 12 months in prison and or a $23,000 fine if proven.
Charges are yet to be laid but Mr Patton said there was no place for the alleged "abhorrent" actions in society, let alone the state's police force.
The Victoria Police boss said there was no history or evidence of the officer expressing extremist views but her motives were unknown.
"The motive doesn't matter," he said.
"The conduct should not, cannot and will not be tolerated, and it just shouldn't have occurred."
Mr Patton apologised to the Jewish and broader community, saying many would undoubtably feel let down by the officer's alleged behaviour, especially so soon after the one-year anniversary of the October 7 Hamas terror attack that claimed the lives of 1200 Israelis.
"It lets down our reputation," he said.
"It disappointed me, it made me angry."
A Victorian police union spokesman described the allegations as serious.
"The Police Association has consistently condemned this offensive gesture and urged the government to toughen legislation and penalties against those who perform it," he said in a statement.
"That stance applies to everyone in our community."
Anti-Defamation Commission chair Dvir Abramovich said the alleged acts were a slap in the face for every Holocaust survivor and a "grave betrayal" of the badge.
"A Nazi salute isn't just a gesture - it's a horrifying symbol of genocide, terror, and anti-Semitism and for a police officer to wield this emblem of hate is beyond disturbing," he said.
He also commended the swift action taken to suspend the officer.
State and federal governments have banned Nazi symbols and gestures following concerns about a rise in anti-Semitism.
Neo-Nazi Jacob Hersant, 25, became the first Victorian found guilty of intentionally performing the Nazi salute in public on Tuesday.
Jacob Hersant faces jail after he was convicted of intentionally performing the Nazi salute. (AP PHOTO)
Hersant walked free from court on Wednesday but Magistrate Brett Sonnet has indicated he will be sentenced to jail on November 8.
MAXIMUM PENALTIES FOR NAZI SALUTES UNDER OTHER STATE AND FEDERAL BANS
* NSW: 12 months prison and/or an $11,000 fine for an individual, while corporations face a $55,000 fine
* Tasmania: three months prison or a $3900 fine for first time offenders, which doubles for further offences within six months
* Victoria: 12 months prison and/or a $23,000 fine
* ACT: 12 months prison and/or a $19,200 fine
* South Australia: 12 months prison or a $20,000 fine
* Queensland: six months prison or a $11,291 fine
* Western Australia: five years prison, or two years prison and a $24,000 fine
* Federal: 12 months prison.
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