The first Allied and Royal Australian Navy submarine lost in World War I has finally been found after a 103-year search off the coast of Papua New Guinea.

"Australia's oldest naval mystery has been solved," Defence Minister Marise Payne said.

"It was … a significant tragedy felt by our nation and our allies."

HMAS AE1 was holding 35 crew members when it went missing off the coast of the Duke of York Islands on September 1914.

Australia's first submarine HMAS AE1 off the coast of the Duke of York Islands in Papua New Guinea. ( Supplied: Department of Defence )

Twelve previous private and government-funded expeditions over the years failed to find the vessel, which was a grave to so many.

The latest, 13th and final search began on board the vessel Fugro Equator last week.

It took a team effort to find Australia's oldest submarine, the HMAS AE1, off the coast of the Duke of York Islands in Papua New Guinea. ( Supplied: Department of Defence )

The missing sub was found yesterday 300 metres under water near the Duke of York Islands.

After the discovery, the crew on board the Fugro Equator took part in a commemorative service to remember the officers and sailors who lost their lives.

Australia's oldest submarine was found 300m under water off the coast of Papua New Guinea. ( Supplied: Department of Defence )

"The boat and her crew, who've been on eternal patrol since 1914 … have now been found," Ms Payne said.

"I truly trust that this discovery will bring peace of mind to the descendants of the families of the crew who lost their lives on board and perhaps in time it may also enable us to discover what caused the submarine to sink."

The submarine was the first of its kind for the Australian fleet and was 55 metres long.

"For the Navy, it demonstrates the persistence of a view that fellow mariners always have and that is, we always seek to locate and find where those who sacrificed so much for their country actually laid at rest," Chief of Navy, Vice Admiral Timothy Barrett said.

The previous searches helped to narrow down where the wreck might be and improvements in technology helped discover the final locations.

A deep drop camera allowed the search party to confirm they had found the missing submarine.

"The final confirmation in this particular case, having found an image on the seabed, was to put a camera down alongside that wreck and actually be able to determine that it had the features that we say belonged to AE1," Vice Admiral Barrett said.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 2 minutes 25 seconds 2 m 25 s Jeremy Fernandez explains the significance of AE1, Australia's first submarine

The exact location of the wreck will be kept under wraps for now, with the Australian Government working with the Papua New Guinea Government to preserve the underwater site and to form a plan for a lasting commemoration.

The search party was jointly funded by the Australian Government, the Silentworld Foundation, The Australian National Maritime Museum and Find AE1 Ltd.

The last known image of the AE1 with HMAS Yarra and HMAS Australia in the background, taken on September 9, 1914. ( Supplied: Sea Power Centre )