Sharrouf, who is fighting with the terrorist group Islamic State of Syria and the Levant (ISIL) also posed with the same head with the caption: "What a head!"
In another post accompanying a picture of himself with his sons, all holding guns, he wrote: "The more u hate this path you infidel aussie dogs the happier feel die in rage when you cant affect men lie about women."
He also raises the threat of bringing the jihad to Australia. "Inshaallah soon in Aus."
Australian Prime Minster Tony Abbott condemned the photo and labelled ISIL barbaric.
"We see more and more evidence of just how barbaric this entity is," Abbott said.
"I believe there are more photographs in the newspapers in Australia today of the kind of hideous atrocities this group is capable of," he said.
Sydney Muslim community leader Keysar Trad said the pictures were "horrifying" and "shocking", adding that he was "working very hard to stop the supply" of young Muslims to radical groups.
The former head of the Australian Army, Peter Leahy, told the Australian breakfast show Today: "I just can't imagine what this young boy is thinking and I certainly can't imagine what his father's thinking.
"We really do need to be concerned about radical Islam, and can I stress I'm not talking about Islam here, I'm talking about those radicals, those terrorists, those people who subject women and children around the world to barbarity and then they put these images [online] and expose their own children to this type of thought."
Sharrouf is on Australia's most wanted list and is thought to have fled the country to Iraq and then Syria in December.
- nzherald.co.nz
