Haines was hit by a Toyota Land Cruiser outside her office in the town of Wangaratta, just over 200 kilometres northeast of Melbourne, at around 0635 CET on Monday.
Australian lawmaker Helen Haines has lost a leg after being struck by a car in a deliberate attack, local media said on Tuesday.
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Political violence is rare in Australia but law enforcement have documented a steady rise in threats and abuse directed towards the nation's elected officials in recent years.
Prime Minister Albanese said the attack was a "test of our character" and led an outpouring of support for Haines, widely praised for her efforts to increase transparency in politics and crack down on corruption.
She was hit by a Toyota Land Cruiser outside her office in the town of Wangaratta, just over 200 kilometres northeast of Melbourne, at around 3:35 pm (0635 CET) on Monday.
Witnesses told national broadcaster ABC they heard a bang and saw a woman pinned between two cars.
She was getting things from the trunk of her car when the attack happened, Albanese said.
The driver did a U-turn to get back to her after passing, he added.
"It's clear this was a deliberate act," he said.
'Hero' barber
The 65-year-old was critically injured and underwent surgery overnight at the Alfred hospital in Melbourne.
National broadcaster ABC and the Sydney Morning Herald reported she had lost a leg.
"Helen remains in hospital in a critical condition. I spoke with her husband Phil last night, and she underwent surgery last night," Albanese told Australian breakfast show Sunrise.
"All Australians' thoughts are with the family, with her many friends, with her community," he added.
The 43-year-old male driver of the vehicle was restrained by local barber Ricky Jefferies, now widely hailed as a "hero".
Jefferies told journalists his first thought had been: "my wife would be disappointed if I'm injured".
"My family, they're everything, and my community is second to that," a visibly shaken Jefferies told journalists.
"The other people here were just, they did so much more than me...they deserve the credit."
'Devastating'
The driver was then arrested and police found a knife in his car.
Australian media reported that he was known to police and that his name is Brendan Nugent.
An investigation by federal police, the counter-terrorism squad and Victoria state law enforcement is ongoing and he remained in custody on Tuesday morning.
Federal police said they were working with local law enforcement on possible charges, including the offence of causing harm to a government official, which carries a maximum penalty of 10 years' imprisonment.
The alleged attacker's motive remains unknown and Albanese has refused to speculate while the investigation takes place.
But he has bemoaned the fact that political debate in Australia had grown too heated and personal over the past few years and pointed to a significant increase in threats against elected officials.
"It's important in a democracy that people are allowed to have disagreements," he said.
"But that doesn't mean that you have to draw into question people's motivations or their patriotism or who they are."