Prime Minister Kevin Rudd made the announcement today as he farewelled Pope Benedict XVI at Sydney airport.

Traditionally, Australia's ambassador to Ireland has had responsibility for the Vatican.

The post of ambassador to Ireland and the Holy See is presently occupied by career diplomat Anne Plunkett.

It was previously held by disgraced West Australian Labor premier Brian Burke and former Howard government minister John Herron.

"Today I announce that for the first time Australia will have a resident ambassador to the Holy See in Rome," Mr Rudd said at Sydney airport, as the Pope sat beside him.

Mr Fischer, a former leader of the Nationals, was then introduced to the Pope, the pair speaking briefly.

Mr Rudd said the appointment would mark a significant deepening of Australia's relations with the Vatican.

"It will allow Australia to expand dialogue with the Vatican in areas including human rights, political and religious freedom, food security, arms control, refugees and anti-people trafficking," he said in a statement.

The appointment of a resident ambassador was also underpinned by Australia's commitment to inter-faith dialogue, Mr Rudd said.

"The Holy See has expressed support for Australia's efforts, within Australia and in the region, to facilitate greater understanding between people of different faiths."

Diplomatic relations between Australia and the Vatican were established by the Whitlam government in 1973.

"Your Holiness, I am confident that Mr Fischer, Ambassador Fischer as he will be, will discharge this position with dignity and enable Australia and the Holy See to be able to work together on the great challenges we face in the world," Mr Rudd said.

"On human rights - including religious and political freedom across the world - on poverty, on food security, on international humanitarian relief, on peace, arms control and disarmament, on the great challenge of climate change and the other great debates affecting the future of our planet."

Mr Fischer is likely take up his appointment in early 2009, joining 69 other resident ambassadors from around the world.