Senator Hanson said in an interview on Monday there were "no good Muslims", while also suggesting future generations would suffer if more followers of the religion were allowed into Australia.
The comments were strongly rejected by Islamic faith groups, as well as by Labor and coalition politicians.
When pressed about her comments on Wednesday, the Queensland senator backtracked on her remarks about there being no good Muslims.
"No, I don't genuinely believe that,'' she told ABC TV, adding that a non-practising Muslim woman had run for election for One Nation.
"If I've offended anyone out there that doesn't believe in Sharia law or multiple marriages or wants to bring ISIS brides in or people from Gaza who believes in the caliphate... then I apologise to you for my comment.
"But in general, that's what they want: a world caliphate and I'm not going to apologise."
Australian National Imams Council president Shadi Alsuleiman strongly rejected the firebrand senator's prior comments, saying they reflected a serious misunderstanding of Islam and the Muslim community.
"For many years, she has made inaccurate and harmful statements based on misinformation rather than genuine engagement," he told AAP.
"Muslims have contributed positively to the growth and advancement of this nation and continue to do so with pride and commitment."
Senator Hanson dismissed the criticism from Islamic groups.
"Of course they're going to say that, but I've heard more hateful things coming out of the mouths of imams giving their sermons on the streets of Sydney, and other places in Australia, but nothing's been said about that," she said.
The Nationals' Matt Canavan said Senator Hanson was not fit to lead her party following her comments on Islamic Australians.
"This statement from Pauline was divisive, inflammatory,'' Mr Canavan told Nine's Today program.
"It's un-Australian, totally un-Australian for someone to say that of those 800,000 Australians who are Muslim, there's no good people among them."Â
Senator Hanson used her maiden speech to the Senate in 2016 to claim Australia was being "swamped by Muslims", a repeat of her 1996 speech to parliament's lower house about Australia "being swamped by Asians".
More recently, she drew widespread condemnation when she wore a burqa in the senate.
One Nation has been out-performing the coalition in recent surveys, with the latest Newspoll showing the party gaining a 27 per cent primary vote compared to the opposition's 18 per cent.
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