Bianca Jones, 19, fell ill last week in Vang Vieng, a town in the Southeast Asian nation popular with foreign backpackers that is about two hours north of the capital Vientiane by road.
She died on Thursday after being taken to a hospital in neighbouring Thailand on November 13, police in the city of Udon Thani said.
"The physician who examined her said the cause of death was a methanol poisoning, from fake liquor," Phattanawong Chanphon, a police official in the Thai city, told Reuters.
"The amount of methanol in her body was high, leading to swelling of the brain."
Australian media said Jones was the fourth foreign tourist to die after consuming the contaminated alcohol, following two Danes and an American.
"This is every parent's worst fear and a nightmare no one should have to endure," Albanese told parliament on Thursday. "All Australians offer them our deepest sympathy in this time of heartbreak."
Jones' friend Holly Bowles, also 19, is in critical condition in hospital, Albanese said.
Spurious liquor is a problem in Laos, with the governments of Australia and Britain warning citizens to be cautious when taking drinks there.
Methanol is a toxic alcohol that is used industrially as a solvent, pesticide, and alternative fuel source, the U.S. Centers for Disease Control and Prevention says on its website.
