John Graham, who has died aged 92, was better known to Guardian crossword solvers as Araucaria. In the summer of 1958, on the strength of his success in winning the Observer's crossword setting competition two years running, he was taken on by the then Manchester Guardian as one of its small band of crossword setters.

The first clue in his first puzzle for the Manchester Guardian set the standard for what was to follow: "Establishment cut to the bone? (8,5)" for SKELETON STAFF. Until 1970, setters were anonymous but were then given noms de plume. Araucaria is the botanical name for the monkey puzzle tree. ("Monkey" was a term of endearment in the Graham family and echoed Desmond Morris's The Naked Ape.)

Graham was born in Oxford, the eldest of six children. His father, Eric, was dean of Oriel College, Oxford, later principal of Cuddesdon Theological College and then bishop of Brechin. His mother, Phyllis, who lived to be more than 100, was the daughter of a major-general. From the age of nine, Graham would share the Times crossword puzzle with his parents, three brothers and two sisters, and together they would engage in cryptic word play and in setting simple puzzles.

After St Edward's school, Oxford, Graham went to King's College, Cambridge, in 1939 with a scholarship and passed part one of the classical tripos. Joining the RAF in 1942, he was sent for aircrew training to Rhodesia and failed his pilot's course, but passed out as an observer. He flew as a navigator/bomb aimer in some 30 sorties in Baltimores and Bostons in Italy, being mentioned in dispatches after baling out behind enemy lines and successfully hiding with an Italian family until rescued by the Americans.

He returned to King's in 1946 to read theology, went on to Ely Theological College and was ordained in the Church of England in 1948. After serving in East Dulwich as a curate and St Chad's College, Durham, in 1952 he married Ermesta and moved to Aldershot as senior curate and then, in succession, to Beaconsfield, Reading University and St Peter's, Eaton Square, in London. His final living was as rector of Houghton and Wyton in Cambridgeshire.

At this point his marriage broke down and in 1983 he married his second wife, Margaret. This then meant that he could no longer work as a priest (and was only able to resume the ministry when his first wife died). Until this point, setting crossword puzzles had been for him an agreeable pastime. Of necessity he now set about making them his main source of income, writing "piteous letters to John Perkin [the crossword editor] asking him to find me more crossword work". Soon he was producing eight cryptic puzzles a month for the Guardian (including three bank holiday "specials" a year), and later also contributing six a month to the Financial Times, where he was Cinephile (an anagram of Chile pine, another name for the monkey puzzle tree), as well as puzzles to the Church Times, Homes and Antiques and other magazines, and to 1 Across, the monthly subscription magazine that he founded in 1984.

For many years he also set the Guardian's daily Quick crosswords. In the last 20 years of his life he embraced new technology, eventually setting up his own website and finding himself to his astonishment overwhelmed by private requests for "bespoke" puzzles to mark some event or anniversary. The volume of his output, the speed at which he worked and his clarity of mind scarcely diminished and he remained a strikingly handsome man until the end.

In lesser hands, such an output might have led to plodding repetition, but the joy of Araucaria's crosswords was that they were always new-coined, witty, imaginative. Even into his 90s custom could not stale his infinite variety. This was largely due to his refusal to accept the strict Ximenean straitjacket conceived by AF Ritchie (Afrit in the Listener) and codified by DS Macnutt (Ximenes of the Observer), assisted by Alec Robins (Custos of the Guardian). Graham followed his own instincts and solvers largely accepted them because they led to such enjoyable results.

Afrit's central injunction for cluing was: "I need not mean what I say, but I must say what I mean." Araucaria had no quarrel with the rule, but insisted that it had to be applied flexibly. A clue must, of course, convey its meaning so that the solver had a fair chance of solving it and of knowing that the answer arrived at was correct. But he did not accept that, in conveying its meaning, it had to stick narrowly to the laws of grammar and syntax. For him, there had to be some sort of understanding between setter and solver about what was "fair" and, provided that this criterion was met, no other rules were needed.

Araucaria once articulated his difference with extreme Ximeneans thus. To clue the word CAIN (who killed Abel) his device might be to insert an "I" into "CAN", which has the slang meaning of "prison". His clue might be: "Having committed a murder, I am in prison." A Ximenean would object that the "definition" in the clue for Cain is unfair, because "Cain" is a noun and "Having committed a murder" is not; and, because here "I" is a letter of the alphabet and not a personal pronoun, it should be followed grammatically by "is" not "am". So a strict Ximenean would require some clue like: "Being guilty of murder, I must be put in prison." In Araucaria's view, Guardian solvers would find that his clue was fair – and better. Most of them were on his side.

Araucaria did not invent "themed" cryptic puzzles, but he greatly developed the art form. For Christmas 2000, the 250th anniversary of the death of Bach, he produced a grid full of more references to the composer than one would have thought humanly possible. But an Araucaria-themed puzzle might equally concentrate on the heroes of the struggle against apartheid in South Africa, Dickens novels, or the sea areas of the British shipping forecast. His unquestionable crossword invention, however, was the alphabetical jigsaw puzzle, where the clues are presented in alphabetical order of their solutions and the solver has to fit these into the grid "jigsaw-wise, wherever they will go".

Araucaria was, also, the master of the very long anagram. He was rightly proud of two in particular. First: "O hark the herald angels sing the boy's descent, which lifted up the world", producing WHILE SHEPHERDS WATCHED THEIR FLOCKS BY NIGHT, ALL SEATED ON THE GROUND; second: "Poetical scene with surprisingly chaste Lord Archer vegetating" for THE OLD VICARAGE, GRANTCHESTER.

For all his repute as the most admired and renowned crossword setter in the English language, Graham was an essentially shy and humble man. He derived huge happiness from his second marriage but, after Margaret died of a heart attack in 1993, had the strength to continue to pursue a full and active life, living alone but being very much part of the social and church activity of the village of Somersham in Cambridgeshire. He did many anonymous acts of kindness, stealthily giving away much of his not very large income.

His strongly held, but mildly expressed, political views were definitely of the left ("the Guardian is my paper, though I find it a bit conservative"). As an adult his paper was the old liberal News Chronicle before it was the Manchester Guardian. On principle he would never have set puzzles for a Murdoch paper. He expected little or nothing from Tony Blair's New Labour and even less from the present coalition, and was therefore not disappointed.

Typically, he decided to announce the fact that he was suffering from non-operable cancer in a puzzle set for the December 2012 issue of 1 Across, which was reprinted in the Guardian on 11 January 2013. The puzzle's rubric, once the puzzle was solved, read: "Araucaria has cancer of the oesophagus, which is being treated with palliative care."

The solutions to other clues included Macmillan nurse, stent, endoscopy and sunset. "It seemed the natural thing to do, somehow," he responded when asked why be had gone public in this way. He was quite overcome by the volume and warmth of the tributes that flowed in as a result of this singular puzzle.

He gave great entertainment to a great many readers for more than half a century and inspired a younger generation of crossword setters. Graham was made MBE in 2005 for his services to crosswords.

He is survived by his brothers Stephen and Martin, his sister Mary and stepdaughters Jane and Judith.

• John Graham ("Araucaria"), priest and crossword setter, born 16 February 1921; died 26 November 2013

• John Perkin died in 2002

• This article was amended on 28 November 2013. The earlier version gave the wording of a clue as "Poetic scene with chaste Lord Archer, vegetating".