Australia has announced that its new $5 bill will not feature an image of King Charles III, a move that spells the phasing out of the British monarchy on its currency notes.

Australia’s Reserve Bank announced that a new design celebrating Indigenous culture will replace the previous portrait of the late Queen Elizabeth II.

The bank said that the decision is aimed at honouring “the culture and history of the First Australians”.

“The other side of the $5 banknote will continue to feature the Australian parliament,” the bank’s statement said.

While the $5 bill is currently Australia’s only banknote to feature a member of the British monarchy, King Charles is still set to appear on coins, which are mandated to have an image of the British monarch.

“The monarch will still be on the coins, but the $5 note will say more about our history and our heritage and our country, and I see that as a good thing,” treasurer Jim Chalmers told reporters. He said that the decision followed consultations with the government, which supported the change and said it provided an “opportunity to strike a good balance”.

Queen Elizabeth’s death last year reignited debate in Australia about its future as a constitutional monarchy. Voters narrowly chose to maintain the British monarch as its head of state in a 1999 referendum. The decision also comes as Australia's centre-left Labor government pushes for a referendum to recognise Indigenous people in the country’s constitution and require consultation with them on decisions that affect their lives.

Australian authorities had said following Queen Elizabeth’s death that the image of King Charles III would not automatically replace her on $5 notes, and that she might be replaced by Australian figures. The decision to include her image on the $5 dollar note was about her personality as opposed to her status as the monarch, they said at the time.

The leader of the main opposition Liberal Party, Peter Dutton, said the move was an “attack on society” and “woke nonsense”.

“I know the silent majority don’t agree with a lot of the woke nonsense that goes on but we’ve got to hear more from those people online,” he was quoted as saying to 2GB Radio.

The prime minister, Anthony Albanese is a long-standing republican, but had said after the death of Queen Elizabeth that it was “not a time” for a debate on the role of the monarchy in Australia. However, Mr Dutton said that he believed the decision about the notes was politically motivated and Mr Albanese should “own up to it”.

The last major change to the five-dollar note was made on 1 September 2016. It featured an image of Queen Elizabeth II next to Australian yellow wattle plants, with Parliament House on the other side. 

The Reserve Bank said it would consult with Indigenous groups in designing the A$5 banknote. It will take a number of years to design and print the new banknote. The current $5 note will continue to be issued until the new design is introduced and will remain legal tender.

"This is a massive win for the grassroots, First Nations people who have been fighting to decolonise this country," tweeted Lidia Thorpe, an opposition Green Party lawmaker of Indigenous descent.