Thirty-three per cent of respondents to a reputable poll picked the One Nation leader as preferred prime minister, compared to 29 per cent for Mr Albanese.
Liberal leader Angus Taylor was favoured by 16 per cent and another 22 per cent were undecided.
The Resolve Political Monitor survey, conducted for the Nine newspapers, was the first by the polling outfit to give respondents a choice of three options for preferred prime minister.
Mr Albanese acknowledged people were under pressure from the cost of living but suggested the shine might come off One Nation by the next election.
"It's easy to identify grievance," he told reporters in the Canberra suburb of Jacka on Monday.
"The issue is providing solutions."
The survey is the latest in a string of opinion polls showing declining support for the coalition and a surge in people backing One Nation.
One Nation's primary vote jumped five points to 29 per cent - meaning almost a third of all voters would put the party first on their ballot paper if an election were held today.
Labor trailed slightly on 28 per cent - a one-point dip - while the Liberals and Nationals were on a combined 20 per cent, down three points from the previous survey.
The prime minister pointed to polls in the months before the 2025 election, which at the time showed him trailing then-opposition leader Peter Dutton.
"I encourage you to go and have a look and see how that stood up to the test of time," Mr Albanese said.
Ayden Cronk, 18, said Mr Albanese was "far from perfect" but reckoned the prime minister was "over-hated" and comically tugged at his shirt collar to indicate discomfort when asked about Ms Hanson.
"Pauline Hanson, in my opinion, bit of a yikes," he told AAP outside Melbourne's Southern Cross station.
"I can see why Australians are wanting to reach out to a third party but at the same time, I feel like that is a really bad choice."
Anthony Boucher, a traditional Labor voter from Bendigo, was open to shifting his support and sympathised with people kicking the tyres on One Nation.
"Love her or hate her, she will make a difference," the 57-year-old said.
"Whether change is good or bad or otherwise - it will be change. People are asking for change because we're sick of living the way we do."
Asked about the poor poll showing, Mr Taylor said he had been meeting with business leaders and they weren't concerned about opinion surveys.
"In that room just a moment ago, no one was talking about polls. They were talking about the future of our country," he told reporters in Sydney on Monday.
"Others will talk about politics and inside-the-beltway stuff. My focus is on outcomes for Australians."
Liberal frontbencher Aaron Violi said voters were unhappy with the coalition after two break-ups with the Nationals and a leadership change, but insisted there was plenty of time to reverse its political fortunes.
"We know we have broken faith with the Australian people as a Liberal Party, as the Nationals, as a coalition," he told Nine's Today program.
"We need to work really hard to win that trust back.
"We've got two years until the next election. There's a lot to play out."
One Nation MP Barnaby Joyce said he was "sanguine" about the shifting political momentum and cautioned the 2028 election would likely show a different result.
"The first thing is don't get carried away," he told ABC Radio.
"I'm very aware of hubris ... we will concentrate on the here and now."
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