Martinovich had completed her acceptance speech before Murdoch backtracked on stage to reveal the real winner from a public vote was 18-year-old Gold Coast rival Amanda Ware.
"I don't know what to say right now. I'm feeling a bit sick about this," Murdoch told a 2,000-strong live audience.
"I'm so sorry. Oh my God, I don't know what to say. This is what happens when you have live TV folks, this is insane, insane, insane."
Foxtel is owned by Australian phone company Telstra, Rupert Murdoch's News Corp and Consolidated Media Holdings.
Foxtel publicity director Jamie Campbell on Wednesday blamed a miscommunication between series directors in a broadcasting truck control room and Murdoch on stage.
Series judge and fashion designer Alex Perry told Sydney radio that Murdoch had made a genuine mistake, denying accusations in media reports that the bizarre mix-up was a publicity stunt.
"Everybody wants to tag something sinister on it and say it was done for ratings. I know Sarah and I know the executive producer. It's just not their style," Perry said.
Martinovich may have had a short-lived reign as Australia's Next Top Model, but it wasn't all bad news as Foxtel said she would receive a A$20,000 (S$25,590) cash prize and trip to New York as consolation, almost matching Ware's series spoils.
Ware won an appearance in Harpers Bazaar magazine, a modelling contract, A$20,000, a trip to New York and a car.
