Prime Minister Tony Abbott and Air Chief Marshal (retired) Angus Houston pictured in 2014. Photo: Alex Ellinghausen

He was the nation's top soldier, and has since become the federal government's Mr Fixit - the "go to" man chosen to lead the complicated investigations into the disappearance of Malaysia Airlines flight MH370 and the shooting down of MH17 over Ukraine.

Now Prime Minister Tony Abbot has named him as the second knight in the second knight in the Order of Australia.

Following the announcement of the Australian of the Year named on Sunday, Mr Abbott made the announcement that elevates the man who was known as Air Chief Marshal and then as Chief of Defence Forces Angus Houston to the lofty title of "Sir Angus".

Air Chief Marshal (retired) Angus Houston may be made a knight by Prime Minister Tony Abbott. Photo: Alex Ellinghausen

Fairfax Media understands the honour – which would have to have been signed off by Buckingham Palace under new arrangements brought in by Mr Abbott personally in 2014 –  was bestowed on the quietly spoken but universally respected former pilot as part of the 2015 Australia Day celebrations.

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When he announced last March the return of knights and dames as Australia's top honours, Mr Abbott made it clear it would be reserved for those whose contributions to national life and the public good were thrust upon them leaving them unable to ever return to completely normal life.

Up to four knights or dames will be appointed in any year.

The first dame under the changes was the former governor-general Quentin Bryce and the first knight was her replacement, Governor-General Peter Cosgrove. All future governors-general will be appointed a knight or a dame.

The categories of Knight and Dame of the Order of Australia were created by the Queen, on advice from the Fraser government, in 1976 and were discontinued under advice from the Hawke government in 1986.

Knights and dames are approved by the Queen on the recommendation of the prime minister. The chair of the Order of Australia Council is to be consulted on any such recommendation.

Retired Air Chief Marshal Houston is the current chair of the council. 

Between 1976 and 1986 there were 14 appointments of the knight or dame of the Order of Australia. A further three were appointed last year: Dame Quentin Bryce, Sir Peter Cosgrove and Dame Marie Bashir.

Mr Houston has been praised by both sides of politics for his integrity, his unflappability under pressure, and for his loyal service to the government of the day.

That courage saw him to take a contrary position to the government during Senate hearings into the infamous "children overboard" affair when  the-then air force chief questioned the government's version of events.

In a mark of the bipartisan respect afforded the British-born Houston, he was close to Labor's Julia Gillard during her time in office, and has since been lauded by Mr Abbott and relied on for the most sensitive diplomatic and investigative missions.

Ms Gillard chose him to participate in a high level examination of asylum seeker policy as her government wrestled with the complicated human rights, justice, and national security implications of various policies.

Fairfax Media last week asked Buckingham Palace if the Queen had recently signed off on any new knights or dames. 

"Knights and dames in the Order of Australia are approved by the Queen on recommendation of the prime minister. We wouldn't comment further on the process," a palace spokeswoman said.