The announcement sparked an angry response from former Labor prime minister Paul Keating, who accused the Prime Minister of being a ''goody two-shoes'' and described Mr Costello as ''a policy bum of the first order who squandered 11 years of economic opportunity''.

The appointment was first reported in the Sunday Canberra Times four months ago, although Treasurer Wayne Swan denied it at the time.

Mr Swan and Finance Minister Lindsay Tanner confirmed the appointment yesterday, saying Mr Costello would join the fund's Board of Guardians on December 18. He will replace John Patterson. Fund board members earn $87,680 a year.

Mr Costello set up the $61billion fund in 2006 as a way of paying for Australia's unfunded public service superannuation debt.

Opposition Leader Malcolm Turnbull said it was a very good appointment, but it showed the ''complete hypocrisy of Kevin Rudd on economic matters''.

''It's not so long ago he was saying that the Liberal Party's economic policies had brought the world to the edge of an abyss, that neo-liberal free-market extremism as practised by the Liberal Party and other governments around the world had done enormous economic harm,'' he said.

Mr Keating said the decision was disloyal to all the Labor politicians who fought Mr Costello during Mr Keating's government and during the subsequent decade in opposition.

''The Prime Minister's goody two-shoes approach of appointing former opponents of the Labor Party to important public jobs is no substitute for thoughtful and mature reflection as to the public requirement of those positions,'' he said.

Mr Rudd has also appointed several other former senior Liberals to government jobs, including Brendan Nelson and Tim Fischer to diplomatic posts, and Robert Hill to a climate change job. He also supported former foreign affairs minister Alexander Downer for a UN position and appointed Labor stalwart Kim Beazley as Australia's representative in Washington.

Mr Rudd said he was acting in the nation's long-term interest and this meant ''sometimes decisions will be a bit on the controversial side''.

''When people retire from active political life, we should draw allthe nation's talents, whatever political tradition they come from,'' he said.

with AAP