Never one to reveal his emotions - unlike Mr Hawke - Mr Keating hardly blinked; he did not deny the remark, but simply brushed it aside.
For a leader who has staked his political image and reputation on his Australian nationalism and his campaign to make the country a republic, ditching the last constitutional links with Britain, which he believes are holding it back, it is an astounding charge. And, much as Mr Keating would like the row to fizzle out, it is likely to keep crashing around him right up to the next general election in two years' time.
Australians have learnt to live with Mr Keating's colourful political language. His parliamentary descriptions of opponents as 'harlots' and 'scumbags' have done him no harm during his 11 years in the Labor government, including two-and-a-half as prime minister. Often sensitive to criticism from outsiders, Australians also know how to laugh at themselves.
But the Prime Minister may have gone too far. To many Australians, Mr Keating long ago lost touch with ordinary people when he traded in his working-class background for a fascination with French Empire antiques, classical opera and expensive Italian suits.
Mr Hawke's allegation is a huge insult, and MPs from the conservative Liberal Party quickly made a mockery of Mr Keating's studied nationalism, of which his republicanism forms the core. Robert Hill asked in the Senate on Thursday: 'Did he, in June 1992, refer to Australians as the lingering stereotypes of gormless men and shrimps on the barbecue? Is he the same prime minister who said that the best way to see Darwin is at 35,000ft on the way to Paris?'
At first, Mr Keating said he could not remember making the remark to Mr Hawke, and tried to explain it in geographical terms: Mr Hawke might have been referring to 'a shorthand way of saying that Australia is way out of the northern hemisphere markets and is a long way from everywhere'.
But this simply presented a further target for Mr Hawke, who has never lost his bitterness at Mr Keating's ousting of him as prime minister in December 1991. He made it known that his political memoirs, to be published in August, will report an angry Mr Keating as telling him a year earlier that, if Mr Hawke did not step aside as prime minister to make way for him, he would leave the country which was, in any case, 'the arse end of the world'.
Mr Keating denied making such a remark, and said Mr Hawke's allegation was 'deeply offensive and defamatory'. But the storm could not have come at a worse time for him. He has been trying to breathe new life into the republican campaign in the wake of an opinion poll showing support for a republic has dropped seven points in a year to 39 per cent, with 43 per cent against.
After talks with the Queen in London three weeks ago, he went to France, where he declared: 'It can't be that Australia in the future can fully make its way in the Asia-Pacific region while the head of state is the monarch of Great Britain.' And on Wednesday, he called for a referendum by 2001 to remove the monarchy from Australia's written constitution.
But Mr Keating knows it will be difficult to achieve such a vote, when most Australians seem unaware that they have a written constitution. So on Thursday, he announced the appointment of three eminent educationists to devise a course to teach children about it.
Mr Hawke's aim at his successor's backside may eventually backfire; but it has left Mr Keating badly bruised.