Australia’s domestic spy chief has criticised an alleged attempt by News Corp staff to provoke workers at a Middle Eastern restaurant into making prejudicial comments as “mind-blowingly stupid” and “unhelpful” during a Senate estimates hearing.

Police were called to the popular Cairo Takeaway in the Sydney suburb of Newtown earlier this month after a confrontation involving the venue’s staff, a team from News Corp Australia and a man wearing a Star of David cap.

Hesham El Masry, the owner of the restaurant, alleged there was an attempt to provoke an antisemitic response from his staff in the presence of Daily Telegraph reporters. The restaurant and its owner have been vocal supporters of Palestine on social media.

Asio’s director general, Mike Burgess, was provided with an overview of the case by Queensland senator Gerard Rennick during Tuesday night’s hearing. Rennick accused the Daily Telegraph team of “stirring trouble” and trying to “bait” staff into making a prejudiced statement.

“In that case, if those facts are correct, then that is just mind-blowingly stupid, is it not, and inappropriate that you would do something to generate a headline,” Burgess told the hearing.

“[It’s] entirely unhelpful and think about the poor person on the receiving end of that.”

Greens senator David Shoebridge then questioned why Burgess was not more critical of the alleged sting operation and suggested it deserved more attention from the domestic spy agency, which has repeatedly warned of social division.

“The concerns that many people have is this was not a moment of stupidity, this was a planned, resourced and approved sting operations to try and sow division on the streets of Sydney,” Shoebridge told the hearing.

“It didn’t appear to be stupid, it appeared to be venal, planned, nasty and divisive … That is more troubling than something mind-blowingly stupid”.

In response, Burgess stood by his characterisation of the incident, as described by Rennick, but said he would not provide further comment without more details.

Burgess also said the incident was not a priority for the agency.

“It came to the attention of Asio but do I have multiple media agencies doing such things? No. In terms of decisions about where I put the weight of my organisation, this is not one of them.”

The Daily Telegraph has been contacted for a response to comments by Burgess and Shoebridge.

Ben English, the editor of the Daily Telegraph, has previously said the newspaper “never intended to provoke an incident at the Cairo Takeaway restaurant” but acknowledged “our approach could have been better handled”.

English said the paper had visited multiple venues across Sydney in an attempt to report on “the rise of antisemitism and … how it is affecting the daily lives of Jewish people in Sydney”.

CCTV images from inside the cafe seen by Guardian Australia showed a man wearing a Star of David cap and necklace entering the busy premises. El Masry said that the man was served tea with “no issues”.

The footage then shows the man moving to one side of the cafe, where he “lingered” for about two minutes, raising the concern of staff, he said. The waitress walked outside, where a reporter, photographer and cameraman appeared to be waiting, he said.

A verbal altercation then took place between the waitress, the man in the cap and the journalists.

“That is out-and-out intimidation. Who comes into a restaurant and asks me a question about this gentleman who I don’t even know?” the woman is heard asking the journalists in footage posted to social media.