Up to nine commanders will have medals and honours revoked after a damning report exposed credible evidence of murder and torture committed by Australian troops.
At least 39 Afghan civilians were unlawfully killed, which Defence Minister Richard Marles described as a national shame.
Defence Minister Richard Marles said commanders had to accept responsibility over the crimes. (Mick Tsikas/AAP PHOTOS)
Commanders were ultimately accountable for the actions of their troops, the minister said.
"You accept the responsibility of that unit in terms of what failings occur," Mr Marles told reporters on Thursday.
Former chief of the defence force Angus Campbell, who served as Middle East commander when some of the alleged crimes occurred, will retain his distinguished service cross.
The decision has sparked anger among some veterans and politicians including Jacqui Lambie.
"How can you possibly not strip him of his citation? How can you possibly do that when he was commanding them over there?" the soldier-turned-senator said.
The Afghanistan inquiry, commonly known as the Brereton report, recommended removing awards from commanders at troop, squadron and task-group level.
This recommendation did not extend to Mr Campbell's command position.
Jacqui Lambie questioned how the former defence chief could keep his distinguished service cross. (Bianca De Marchi/AAP PHOTOS)
Liberal frontbencher Andrew Hastie, a former special services soldier, said command accountability must go further up the chain.
"I believe that our troops were let down by a lack of moral courage that went up the chain of command all the way to Canberra - including in this house," he told parliament.
"I want to be clear: those who are alleged to have shed innocent blood are alone responsible for that. I do not say this to absolve or condemn anyone.
"But those in the chain of command who saw the post-mission slide decks with the kill counts and pictures of dead individuals had an obligation to ask questions."
Senator Lambie agreed.
"We have to hold people accountable, you can't throw the diggers under the bus, these guys up here were making decisions," she said.
"And if they didn't know what was going on in the ground, then they should have."
Liberal frontbencher Andrew Hastie said troops were let down by 'a lack of moral courage' higher up. (Mick Tsikas/AAP PHOTOS)
Mr Marles sent letters to fewer than 15 people advising them about his decision on whether their honours were stripped after the senior officers were referred to him by the former defence force chief.
Appeal options are limited but can be assessed by a judicial review.
A compensation scheme has been set up for Afghan families of civilians killed or injured during Australian operations.
Of 143 recommendations in the Brereton report, 139 have been addressed.
The remaining four remain on hold pending investigations by a special investigator.
Criminal investigations remain afoot and one man has been charged with murder.
The minister's response does not include stripping the Victoria Cross - Australia's highest military honour - from Ben Roberts-Smith.
Mr Roberts-Smith was found by the Federal Court to have committed war crimes including murder during his time in Afghanistan.
The war veteran maintains his innocence and has appealed the ruling, which flowed from a failed defamation case against Nine Entertainment.
RSL national president Greg Melick expressed "deep concern" over the medals being stripped, saying any loss of medals should wait until all investigations and potential trials have concluded.
"The RSL is aware of the significant strain this matter has placed on veterans, even those not involved in alleged incidents," Mr Melick said.
It was disappointing the announcement was made days after a damning report into veteran suicides, he said.
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