Tim Mathieson made the comment during a reception at The Lodge in Canberra on Monday night attended by members of the West Indies cricket team.
Mathieson, who has worked to raise awareness about men's health issues, brought up the need for men to have regular checks for prostate cancer.
"We can get a blood test for it but the digital examination is the only true way to get a correct reading on your prostate, so make sure you go and do that. And perhaps look(ing) for a small Asian female doctor is probably the best way..."
The comment was met with laughter at the time, but the opposition said Mathieson's remark was in bad taste and he later apologised.
"It was meant as a joke, and on reflection I accept it was in poor taste," he said in a statement.
"I apologise for any offence caused."
Gillard, the nation's first female leader, caused a global stir in October when she lashed out at opposition leader Tony Abbott in parliament, saying she would not be "lectured about sexism and misogyny by this man".
She said on Tuesday that Mathieson was passionate about getting out the message to men to get recommended health checks, but agreed the apology was the right thing to do.
"Tim's apologised for a joke that was in poor taste," she said
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