ESafety commissioner Julie Inman Grant has slapped an Aus$610,500 (US$385,000) fine on the company formerly known as Twitter, criticising its "empty talk" on the issue.
Inman Grant -- herself a former Twitter employee -- has also fired off a formal warning to Google for falling short of its responsibilities around tackling child abuse material.
Billionaire Musk has slashed more than 80 percent of X's global workforce since his takeover, including many of its content moderators who are responsible for stamping out abuse.
Proactive detection of child sexual exploitation on X fell from 90 percent to 75 percent in the three months after the takeover, Inman Grant said.
"Twitter/X has stated publicly that tackling child sexual exploitation is the number one priority for the company, but it can't just be empty talk.
"We need to see words backed up with tangible action."
Inman Grant sent legal notices to a series of online platforms in February, demanding they demonstrate how they were moderating and removing extreme content.
She said the underwhelming responses from both X and Google were either because they worried about public perception or because their systems were not up to scratch.
"Both scenarios are concerning to us and suggest they are not living up to their responsibilities and the expectations of the Australian community."
Australia has spearheaded the global drive to regulate social media platforms -- and it is not the first time Inman Grant has singled out X or Musk.
In June this year, she raised concerns about a spike in more general "toxicity and hate" following Musk's takeover in October last year.
AFP requested comment from X but the company's response was an email saying: "Busy now, please check back later."
Google told AFP it had developed a "range of technologies" to detect, report and remove child sexual abuse material.
"We remain committed to these efforts and collaborating constructively and in good faith with the eSafety commissioner, government and industry on the shared goal of keeping Australians safer online."
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