Canberra, Mar 18: Australia's greatest military mystery was solved with the discovery of a World War two warship which went down with all 645 crew in a fierce battle with a German vessel more than 66 years ago.

A day after searchers located wreck of the German merchant raider HSK Kormoran off the west Australian coast, PM Kevin Rudd said they had also found the Australian battlecruiser HMAS Sydney , sunk by the German ship.

Rudd, flanked by top military commanders, said it was "a historic day for all Australians, and a sad day for all Australians".

The sinking of the HMAS Sydney is Australia's greatest naval tragedy, with all hands lost after a 30-minute battle with the German ship on November 19, 1941. The cruiser was also the biggest ship lost with no survivors from any World War two nation, historians said.

The Sydney was found by a research ship at a depth of 2,470 metres, about 240 km west of Shark Bay, off the coast of Western Australia, Rudd said. High-resolution sonar images showed the wreck was near intact.

The Sydney was found by American wreck hunter David Mearns, who also located Germany's battleship Bismarck in its North Atlantic grave.