Chair of the Australian War Memorial Kim Beazley says the discovery of SS Montevideo Maru in the South China Sea almost 81 years after the tragedy is a "monumental moment in war history".
More than 1,000 Australian soldiers and civilians, captured by the Japanese following the fall of Rabul died at sea on 1 July 1942 when the ship was torpedoed by the USS Sturgeon, unaware that it was carrying Allied prisoners.
Mr Beazley's uncle, Syd Beazley, was among those lost in the tragedy.
"Finding the site of Australia's most devastating loss at sea and will help heal Australia's collective memory for generations," Chair of the Australian War Memorial Kim Beazley said.
"This has solved a Second World War mystery and my family's history."
Mr Beazley's uncle was a resident of Rabaul in New Guinea's East New Britain province, and was on board the ship.
"This discovery is connected to an enormous Australian tragedy, both from massacres on land and the huge loss of life at sea," Mr Beazley said.
"This is a monumental moment in history and for the families who have agonised and grieved about what happened to their loved ones on this ill-fated ship."
In 2009 Mr Beazley joined a group of relatives urging the federal government to launch a search for the wreck.
Australian War Memorial Director Matt Anderson said: "The families on the ship were unaware of their loves ones fate until after the war.
"According to an account from the handful of surviving Japanese crew, the Australians in the waters sang Auld Lang Syne to their mates still trapped in the ship as it sank beneath the waves."
"We should take both pride and comfort in the fact we live in a country where we have continued, for 80 years, to find the Montevideo Maru's final resting place. This will bring some measure of closure to the relatives and, I hope, allow all those who perished, to finally rest in peace."
Last year, families of those who died marked the 80th anniversary of the tragedy at the Australian War Memorial
The Australian War Memorial commemorates the tragedy through a commemorative sculpture and the Memorial's Roll of Honour.
