Dr Nelson revealed on Thursday he had knocked back an offer of an additional five-year contract, because of the upcoming redevelopment of the war memorial - an expansion which he had championed.

"I think in leadership there are many things that are required, but one of them is knowing when to go," Dr Nelson said.

"It's been a difficult decision because ... if i was to stay I'd need to stay another eight years to see the project fully through and I don't think that's in the interest of the memorial."

Dr Nelson said even his "harshest critics" would accept the war memorial had a "different place and meaning to Australia" than before he took over.

"I've been able to build a legacy for my predecessors and I think give the memorial a preeminence that perhaps it possible had lost," Dr Nelson said.

Veterans' Affairs Minister Darren Chester said his preference would have been for the former Liberal leader to stay.

"Brendan simply told me he thought it was time for him to move on ... his view that he expressed to me was that with the redevelopment ... the director going forward needed to be able to commit to a longer period of time than he was able to do," Mr Chester said.

"There was obviously no ill feeling whatsoever, in fact if I had it my way I would have been able to squeeze a couple more years out of Brendan Nelson but simply Brendan was of the view that it was time for him to move on."

A national search will be conducted to find a replacement.

Mr Chester said the hunt would begin in coming days.

The new director need not be former military, but should have "empathy and a great deal of commitment to telling the story of Australian servicemen and women", Mr Chester said.

"Obviously it's an appointment made by the government but it will go through a full process and I'm looking forward to seeing some extraordinary Australians putting their names forward for this role," he said.

"I freely acknowledge in many ways Brendan Nelson has revolutionised the role. He has left very big shoes to fill but I'm confident there are some great Australians out there who'll be interested in this job."

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Dr Nelson was the driving force behind the half a billion dollar expansion of the memorial, which is expected to take nine years to complete, including the demolition and rebuilding of Anzac Hall.

Chair of the Australian War Memorial Council, Kerry Stokes, said Dr Nelson had been dedicated in his role.

"Dr Nelson has overseen a transformation in the Australian War Memorial that has taken it to a new level of awareness and appreciation by the Australian people," Mr Stokes said.

"Working closely with the memorial's council and building on the work of his predecessors, Brendan has brought our nation's history to life, emphases the commemorative and healing role of the memorial, and most importantly, made it a place of immense meaning for young servicemen, women, veterans and their families."

But Dr Nelson has also weathered criticism for the scale of the expansion, and for securing sponsorship deals from weapons manufacturers.

Former war memorial director Brendon Kelson criticised the plans as turning the site into a "theme park" for military hardware enthusiasts.

However, Mr Chester said that was a "ridiculous proposition".

"I reject the comment because what Brendan has been very conscious of doing is even though it's called the Australian War Memorial, it's been more about love and commemoration and respecting the service and sacrifice of Australian men and women and their families. It's not about glorifying war in any way shape or form," Mr Chester said.

"It's about how a nation pays its respects to those who've allowed us to enjoy the freedoms we enjoy today and I think Brendan has been extraordinarily respectful in the way he's done that."

Mr Chester said the redevelopment heralded a new age for the war memorial.

"We've been through a high operational tempo as a nation where we've had a lot of people deployed in Afghanistan, Iraq and peacekeeping missions but unfortunately their story is not that well told at the war memorial at the moment because there's just not enough space," he said.

"I think what Brendan's put forward with the board has been a very appropriate way of recognising that service and to allow the younger generation of veterans to feel their story's being adequately told and respected in the heart of the nation there in the capital, in Canberra where we tell the stories of our great heritage."

Dr Nelson listed his highlights in the role as the opening of the Afghanistan exhibition, presenting Cameron Baird's Victoria Cross to the memorial, and listening to John Schumann perform I was only 19 in the Hall of Memory on the 50th anniversary of the Battle of Long Tan.

"Perhaps above all I am proud that young servicemen women and veterans now regard the war memorial as being their spiritual home as much as those of earlier generations. I think we made a difference," Dr Nelson said.

Opposition leader Anthony Albanese said Dr Nelson had done an "incredible job" of raising the profile of the war memorial, both in Australia and abroad.

"It is a sacred place for Australians. It's one which we should all respect and it's one which Brendan Nelson has brought his considerable capacity, enthusiasm and diligence in that job and I pay tribute to him," Mr Albanese said.

- with Sally Whyte