Australia announced Thursday it will erase the British monarch from its banknotes, replacing the late Queen Elizabeth II's image on its $5 note with a design honouring Indigenous culture.

The central bank's decision to leave her successor Charles III off the $5 note means no Britain-based monarch will remain on Australia's paper currency.

The Reserve Bank of Australia said it would consult with Indigenous people on a new design that "honours the culture and history of the First Australians".

The new banknote would take "a number of years" to be designed and printed, it said, with the existing $5 note remaining legal tender even after the new design is in people's hands.

Queen Elizabeth's death on September 8 last year was marked by public mourning in Australia, but some Indigenous groups also protested the destructive impact of colonial Britain at the time, calling for the abolition of the monarchy.

The central bank said its decision was supported by the centre-left Labor government of Prime Minister Anthony Albanese, who supports an eventual move to an Australian republic.

The move was hailed by the nation's republican movement, which noted that Indigenous people predated British settlement by 65,000 years.

"Australia believes in meritocracy so the idea that someone should be on our currency by birthright is irreconcilable as is the notion that they should be our head of state by birthright," said Australian Republic Movement chair Craig Foster.

"To think that an unelected king should be on our currency in place of First Nations leaders and elders and eminent Australians is no longer justifiable at a time of truth telling, reconciliation and ultimately formal, cultural and intellectual independence."