Prime Minister Malcolm Turnbull has dumped knights and dames from the honours system, labelling the titles "anachronistic and out of date".

The old-style honours were reintroduced by former prime minister Tony Abbott in 2014 for "pre-eminent Australians", but became the subject of ongoing ridicule and controversy.

Mr Turnbull, who is a well-known republican, said Cabinet has agreed the titles are no longer appropriate in the modern awards system and revealed the Queen has approved his request to scrap them.

"It is a long way from being the most important issue in Australia today," he said.

"This reflects modern Australia.

"Knights and dames are titles that are really anachronistic, they're out of date, not appropriate in 2015 in Australia."

Since 2014, the honour has been bestowed upon Governor-General Peter Cosgrove, former governor-general Quentin Bryce, Prince Phillip, former Defence Force chief Angus Houston and former NSW governor Marie Bashir.

Mr Turnbull said they would not be affected by the changes.

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Finance Minister Mathias Cormann said while he supported a constitutional monarchy, the same could not be said for knighthoods.

"I mean, I'm a monarchist and I agree that in 2015, knights and dames are a bit anachronistic and I certainly fully support the decision that the Government has made," Mr Cormann said.

"It's a Cabinet decision, it's not just a decision by Malcolm Turnbull and it's a decision I fully support and endorse."

Mr Abbott shocked his own party when he brought back knights and dames in 2014 and was ridiculed as "out of touch", but it was his decision to knight Prince Phillip on Australia Day this year which drew the greatest controversy.

Following a public backlash, Mr Abbott announced he would remove himself from the process of choosing knights and dames.

Labor frontbencher Chris Bowen welcomed the decision to scrap the titles but said they should never have been brought back.

"It was a farce, a joke, a national disgrace that the Liberal National Government, of which Mr Turnbull was a Cabinet minister, decided to set the rewind button on Australia's national institutions and reinstate knights and dames," he said.

"It is not appropriate in modern day Australia ... that we are clinging onto imperial Britain through our honours system, and we shouldn't be celebrating the fact that knights and dames are gone, we should be lamenting the fact that they came back under this Government."

The first of many moves away from monarchy: republicans

Republicans predict Mr Turnbull's decision to axe the knights and dames honours system will foreshadow more significant moves away from the monarchy.

"It will be the first of a series of moves I believe that he will make," the Chairman of the Australian Republican Movement (ARM) Peter FitzSimons told The World Today.

Monarchists agree the decision is in keeping with Mr Turnbull's strong views on a republic.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 6 minutes 57 seconds 6 m The PM has scrapped knights and dames honours

"I have no doubt that Mr Turnbull wishes to impose a politicians republic on Australia at some time when he thinks it would be victorious," Australians for a Constitutional Monarchy convenor David Flint told The World Today.

"I wasn't surprised that this should be the first significant policy change for the Turnbull Government."

Mr Flint suggested the move was "an attempt to just show Tony Abbott should never have restored them".

Mr FitzSimons said he has raised the issue once with Mr Turnbull since he became Prime Minister.

"I had one very strong conversation with him at the NRL grand final," he said.

"When I say strong, it was strong on my side and fairly strong on his and we were in agreement."

Mr FitzSimons described the announcement as a "relief for Australia".

"Good on the Prime Minister."

However the Australian Monarchist League has accused Mr Turnbull of trying to "break Australia's heart".

"The scrapping of knighthoods... gives all who value constitutional security and stability cause for concern that this is just the beginning of another campaign of republicanism by stealth," it said.

As the head of the Republican Movement, Mr Turnbull famously accused former prime minister John Howard of "breaking the nation's heart" when the republican referendum failed in 1999.

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