Prime Minister Scott Morrison has announced his new ministry with former defence minister Marise Payne replacing Julie Bishop who announced she would quit as Foreign Affairs Minister.

Key points: Leadership rival Peter Dutton has retained Home Affairs but lost Immigration

Leadership rival Peter Dutton has retained Home Affairs but lost Immigration Julie Bishop has been praised by both sides after resigning as foreign minister

Julie Bishop has been praised by both sides after resigning as foreign minister Population, industrial relations have been added; Energy split from Environment

The former deputy Liberal leader said she will stay on as an MP.

Mr Morrison's other challenger for the leadership, Peter Dutton, will keep his job as Home Affairs Minister but it has been split to separate Immigration, with that job going to David Coleman.

"David has a keen understanding of the many different backgrounds and the many different issues that need to be managed to ensure that Australians who have come from so many backgrounds get that fair go I spoke of," Mr Morrison said.

He said his team was chosen to ensure stability but also to "begin the work of healing that is needed" after the leadership change.

Mr Morrison has announced Christopher Pyne will replace Senator Payne as Defence Minister and Steve Ciobo steps into the Defence Industry role.

Simon Birmingham will take over Mr Ciobo's former job as Trade Minister.

Mr Morrison has split the Energy and Environment role into two separate ministries, Melissa Price has been promoted into Cabinet and becomes Environment Minister.

Angus Taylor, who was among those who backed Mr Dutton in the leadership challenge, has been given the Energy role.

"The Minister for getting electricity prices down, also to be known as the Minister for Energy, will Angus Taylor," Mr Morrison said.

"I'm looking for more and new innovative ways for Angus Taylor to bring a greater opportunity to bring the prices down and I'm sure he will be doing that," Mr Morrison said.

He cited price and reliability but did not mention emissions reduction as part of the Minister's task.

Mr Morrison's first frontbench has reshuffled portfolios and added industrial relations and population. ( ABC News: Marco Catalano )

The PM has appointed Dan Tehan as the new Education Minister.

He will be tasked with helping to resolve the ongoing row with the Catholic sector about school funding.

"In terms of education, there are some clear issues that we are still seeking to resolve.

"I can assure you that Dan will pick up the work that was being done by Senator Birmingham to ensure that we can move quickly to resolve any concerns that have been raised," he said.

Mr Morrison had already announced his new deputy Josh Frydenberg will be Treasurer.

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Joyce appointed drought envoy

There is a new role for former deputy prime minister Barnaby Joyce as special envoy for drought assistance and recovery.

"We have an ability for our members who have served in leadership roles in the past to be drawn on, to engage with Australians on some of these big challenges," Mr Morrison said.

"I am pleased that Barnaby has agreed to take on the role."

He has indicated former PM Tony Abbott could also have a similar job but that has not been settled yet.

In a sign of the ongoing policy tension, Nationals MP Keith Pitt has announced he has resigned from the ministry because of his concerns over energy prices.

Former frontbencher Craig Laundy asked not to be considered for the ministry.

After Malcolm Turnbull had been under pressure to announce a population policy, Mr Morrison announced that Alan Tudge will have population added to his Cities and Urban Infrastructure portfolio.

He has also elevated industrial relations to Cabinet with Kelly O'Dwyer in charge, calling it a big signal about "how important we think it is to productivity".

Bipartisan tributes paid to Julie Bishop

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Mr Morrison has paid tribute to Julie Bishop as he announced his new frontbench, describing her as a role model.

Her decision came after she was knocked out in the first round of the three-way Liberal leadership contest which installed Mr Morrison as PM in place of Malcolm Turnbull.

Mr Turnbull described Ms Bishop as an inspiring role model for women "here and around the world".

"Today we have lost Australia's finest foreign minister," he tweeted.

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Labor's Foreign Affairs Spokeswoman Penny Wong paid tribute to Julie Bishop "for her trailblazing role as the first Australian woman" to be foreign affairs minister.

"For five years she has dedicated her life to our nation with a tireless work ethic and exhausting travel schedule," Senator Wong said.

She said Labor had at times been critical of foreign policy directions under prime ministers Abbott and Turnbull but "Ms Bishop's commitment to standing up for Australia both here and abroad has never been in question".

"In particular I have deeply appreciated her commitment to bipartisanship and her personal courtesy to me," Senator Wong said.

Up until Friday's leadership spill Ms Bishop had been deputy leader of the Liberal Party for more than a decade, having taken on the position in the aftermath of the Howard Government's election defeat in November 2007.

She had served as foreign affairs minister since the Liberals regained government under Tony Abbott in September 2013.

Julie Bishop after running in the 12-kilometre Perth City to Surf at City Beach. ( ABC News: James Carmody )

As foreign minister, Ms Bishop was tasked with how to deal with an expansive China.

She also campaigned in the United Nations to get access to the Malaysia Airlines flight MH17 crash site after the downing of the plane over rebel-controlled eastern Ukraine in July 2014.

After a joint investigation into the incident concluded the Russian military was behind the missile attack, she demanded the suspects be extradited to the Netherlands to face trial.