The New South Wales (NSW) education department confirmed that students with special needs at Seven Hills West Public School were put into a fenced off area while other students spent their breaks in a larger playground.
The pen was reported to have just one tree, one bench and no grass.
The NSW opposition Liberal Party said separating autistic children was inhumane and "outrageous".
Andrew Constance, the opposition disability spokesman, said he had seen cattle yards in better condition.
"You cannot treat children with autism in this way," he told the Australian Broadcasting Corporation.
"It is, I think, no doubt in breach of every discrimination act in the country."
One parent of an autistic child who attended another school said Seven Hills West was treating the children "like rats".
However, the school, which has 52 students with special needs, has defended its decision, claiming that the fenced-off area kept the children out of danger.
The school is located close to a busy road and teachers were concerned that children with "no sense of boundaries" could wander into traffic.
Michael Coutts-Trotter, the head of the education department, said the area was fenced off at the request of parents and was always supervised. He admitted the area needed to be grassed, but praised the school for the way it dealt with autistic students.
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