The price war on milk will be the subject of a parliamentary inquiry.
Coles started a discount battle in January when it began selling cartons for just $1 a litre.
Woolworths immediately challenged its rival, sparking a wider battle with Aldi and Franklins.
The Senate on Thursday passed a motion calling on the economics committee to investigate how the price war is affecting dairy farmers.
The inquiry will also examine if Australia's supermarket giants have engaged in anti-competitive and unsustainable practices.
Independent senator Nick Xenophon successfully moved the motion, with the support of the coalition and the Australian Greens.
It came only hours after coalition MPs called for the Australian Competition and Consumer Commission to save the many dairy farmers facing bankruptcy.
"There is growing evidence that this latest grab for market share by the big two supermarket chains could have a devastating impact," Senator Xenophon said.
In a letter to Prime Minister Julia Gillard, made public on Thursday night, Senator Xenophon accused the government of ignoring the plight of dairy farmers.
He was seconded by lower house independent MP Rob Oakeshott, who is backing Labor in minority government.
"We are incredulous that the government does not see this as significantly damaging to the dairy industry in Australia," they said in their letter dated February 8.
"It is a 'price war' we do not need and should not have and it is not in the long term interests of consumers."
Liberal backbenchers and dairy industry leaders gathered at Parliament House on Thursday.
Joining them was opposition agriculture spokesman John Cobb, who said executives at Coles were "quite happy to get their bonuses over the dead bodies of farmers".
Shareholders of Coles' parent company Wesfarmers needed to take action to stop the "predatory pricing", the group said.
They are asking shareholders to gather 100 signatures in a bid to call an extraordinary general meeting.
Australian Dairy Farmers vice president Chris Griffin urged "truck drivers" and "owners of corner stores" to use their shareholder power.
"Let's get behind the industry and stop this unsustainable pricing," he said in a statement.
Mr Cobb, who hails from the rural NSW electorate of Calare, said consumers would fail to understand that Coles selling milk at $1 a litre would eventually entrench a dominant player who could set any price.
Australian Greens deputy leader Christine Milne said the inquiry must deliver for dairy farmers or risk undermining confidence in the parliament.
"Dairy farmers will be increasingly troubled by the emerging pattern of Senate inquiries making supportive recommendations and then being completely ignored," Senator Milne said.
"The time for talk is over. It's time Australia's dairy farmers saw something being done to protect their livelihoods."
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