The family of Tasmanian Teddy Sheean and state politicians have for years pushed for him to be recognised with the country's highest wartime honour.

The Defence Honours and Awards Appeals Tribunal had reviewed whether Sheean should be awarded a VC, with a previous inquiry in 2013 finding his actions didn't meet the required high standard.

"The review by the tribunal did not present any new evidence that might support reconsideration of the valour inquiries recommendation," Federal Defence Minister Linda Reynolds announced to the Senate on Wednesday.

"It is a very difficult decision but I believe, in the circumstance, the right decision."

Sheean died aged 18 in 1942 when HMAS Armidale was sunk after being attacked by Japanese planes in the Timor Sea.

He strapped himself to an anti-aircraft gun as the vessel went down and is credited with helping save the lives of 49 crew.

Tasmanian Minister for Veterans' Affairs, Guy Barnett, has spent 17 years campaigning for Sheean's bravery to be recognised with a VC.

He said he will ask the federal government to reconsider their decision.

"(Sheean) made the ultimate sacrifice to protect his fellow shipmates in the most perilous of circumstances and deserves better than this," Mr Barnett said.

"I will further consider all available options to ensure Teddy Sheean receives what he is entitled to."

Mr Barnett said the tribunal had unanimously found Sheean met the eligibility criteria for a VC.

"It is staggering that the federal government has not accepted the tribunal's recommendation," he said.

Tasmanian Senator Jacqui Lambie described the decision as a "slap in the face" to Sheean's family.

Australian Associated Press