Prime Minister and Cabinet secretary Michael Thawley resigns in public service shake-up

A vacancy has also opened up at the Communications Department as its former secretary, Drew Clarke, has become the Prime Minister's permanent chief of staff.

Mr Turnbull has made no appointments, though former Treasury secretary Martin Parkinson is expected to replace Mr Thawley as head of the Department of the Prime Minister and Cabinet.

Mr Parkinson was sacked by former prime minister Tony Abbott in one of his first acts in office, which came with the order for DFAT to absorb AusAID and its 1500 staff.

The shake-up follows the resignation of Department of Foreign Affairs and Trade secretary Peter Varghese, which is effective from July, when he will take up a role with the University of Queensland.

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In a letter to DFAT staff, Mr Varghese said he would return to Brisbane next year but remained focused on his current job.

"The timing of this decision has been driven by the wish of the University of Queensland, which is keeping the chancellor position open for six months, to make an announcement about my appointment," he said.

"It still leaves me with seven months in the secretary's job to take further our big policy and management agendas and also to deal with the response to and implementation of the functional and efficiency review which is due at the end of this month."

Mr Turnbull said Mr Thawley, who built a career in the US finance market, wished to return to the private sector after leaving the department.

"I am grateful for Michael's support as my department head and I thank him for his leadership of the APS," Mr Turnbull said.

In a letter to colleagues, Mr Thawley said the role had been the highlight of his "highlight of his life" and he had enjoyed the challenge.

"I will be around for another few weeks and we still have some time to talk about what the government's agenda might be and how we can make our department more successful in its ambitions," he said.

"I expect that an announcement of my successor will be made in the next couple of weeks or so."

One of Mr Thawley's final acts as secretary was to announce hundreds of fresh redundancies, with 200 full-time equivalent jobs to be cut from a workforce of 2324 employees. Prime Minister and Cabinet has already absorbed about 300 job cuts in the past two years.

Mr Varghese, who will turn 60 in March, said he wished to build a career across the university, corporate and community sectors.

"It is never easy to leave a career which has been so much more than a job. But I know that the time is right," he said.

Foreign Minister Julie Bishop also paid tribute to Mr Varghese and said he had been "a constant source of safe advice during a time of significant international challenges".

"I have personally benefited from his calm, competent and insightful counsel," she said.

UQ vice-chancellor and president Professor Peter Høj said Mr Varghese was an excellent choice for the university. He will replace John Story, who has served as UQ's chancellor since 2009.

Mr Varghese was charged with overseeing the integration of DFAT with AusAID, which has placed significant strain on the department.

Before becoming the department's secretary, Mr Varghese was a high commissioner to India and director-general of the Office of National Assessments. He also served as the Australian high commissioner to Malaysia and as a deputy secretary of DFAT.

Mr Varghese oversaw a period of downsizing at DFAT in line with staff cuts across the entire public service.

More than 160 DFAT staffers have accepted voluntary redundancies in the past 12 months. Close to 300 bureaucrats left the department with voluntary redundancies between November 2013 and September 2014.

One of his final actions before announcing his resignation was to release a new strategy to improve gender equality within the department, with women making up fewer than 34 per cent of senior executive positions and only 27 per cent of heads of mission.

Australia's former ambassador to China, Frances Adamson, has been identified as a potential replacement for Mr Varghese.

Ms Adamson was a chief of staff for former foreign affairs minister Stephen Smith and recently returned to advise Mr Turnbull on international relations.

Mr Parkinson's return to the public service could be complicated by his wife, Heather Smith, who is a deputy secretary at the Department of the Prime Minister and Cabinet.

Dr Smith, who is also a former DFAT deputy secretary, has been touted as a possible replacement for Mr Varghese.