Arnold, who guided the Central Coast Mariners to their maiden A-League championship last week, said he had prioritised using local players rather than imports in his side and suggested rival teams did the same.
"I think all other clubs need to follow suit because it's damaging the national team," Arnold told reporters on Sunday.
"The Socceroos, at the moment, if you talk to Holger, he has trouble picking any players because there's too many foreigners in the A-League, in my view," he added, referring to national head coach Holger Osieck.
"You've only got nine (Australian) teams in the A-League and one... New Zealand team.
"If every team has five foreigners, that's 45 field players that take the pitch every week that are foreign and only 45 Australians.
"It's not that many players for national teams to choose from."
Australia remain in the hunt for a third successive World Cup appearance at the Brazil finals in 2014, but have struggled to replace a golden generation of players that qualified for the 2006 finals in Germany and in South Africa four years later.
German Osieck has lamented the lack of a new wave of high-quality, young players to choose from, while complaining that the A-League season's early finish leaves potential candidates lacking sharpness for international duties later in the year.
Arnold, also a former head coach of the Socceroos from 2006-07, said outstanding foreign players like Alessandro Del Piero and Emile Heskey would be welcomed Down Under, however.
Former Italy and Juventus great Del Piero will play a second season with Sydney FC in 2013-14, while former England striker Heskey will stay on for another year with Newcastle Jets.
The pair, along with the Western Sydney Wanderers' Japanese recruit Shinji Ono, generated unprecedented buzz for the fledgling competition last year when their signings were announced in the leadup to the just-concluded season.
"Del Piero and Heskey, they've taken the league to another level," Arnold said. "Those type of players, they're welcomed in this country."
Australia, on six points, lie third in Asia's Group B of the World Cup qualifiers, seven behind leaders Japan, who they visit in June before closing out their campaign with home matches against Jordan and Iraq.
The top two teams qualify automatically for Brazil, with the third facing a playoff against a South American side.
- Sports & Recreation
- Alessandro Del Piero
- Emile Heskey
- The Socceroos