The Federal Government has confirmed Treasury secretary Ken Henry is retiring from his role.

He will finish up early in the new year and will be replaced by Climate Change Department secretary Martin Parkinson.

Confirming Dr Henry's decision this morning, Prime Minister Julia Gillard called him "one of the greatest of all Treasury secretaries".

"Dr Henry has made a major contribution to the wellbeing of Australians and the prosperity of the nation during his more than 25 years at Treasury, during 10 of which he has been secretary," she said in a statement.

Dr Henry had a distinguished career in the Treasury and related areas dating back to 1984.

He was first appointed secretary to the Treasury in 2001 and was reappointed for a further five years from 2006.

Federal Treasurer Wayne Swan has heaped praise on Dr Henry, saying his performance during the global financial crisis shows he is arguably the finest Australian public servant since HC 'Nugget' Coombs.

Opposition frontbencher Malcolm Turnbull also paid tribute to Dr Henry, telling ABC News24 that Australia was grateful for his service.

"Ken Henry was a distinguished public servant and very capable Treasury secretary. We all thank him for his public service," he said.

But he also said that Dr Henry, who has been accused by the Opposition of presiding over a politicised Treasury department, had been an "enthusiastic supporter" of the Government.

And he claimed Dr Henry's resignation had been sparked by his frustration with the Government.

"A big part of his thinking at the moment would be just sheer despair at the failure of this Government to act in any form of economically responsible approach," he said.

The move has sparked a round of musical chairs in Canberra's corridors of power.

Dr Parkinson's position will be taken by deputy secretary Blair Comley.

The secretary of the Department of Families, Housing, Community Service and Indigenous Affairs, Jeff Harmer, will also retire next year. The secretary of the Department of Human Services, Finn Pratt, will take over the role.

Dr Parkinson will start his new role on March 7, Ms Gillard said.

"Dr Henry has indicated to me that he warmly welcomes Dr Parkinson's appointment and is looking forward to taking a break after 10 years as secretary," she added.