Since the AFP's much-criticised investigation of Indian doctor Mohamed Haneef on terrorism allegations that proved unfounded, there has been speculation that Mr Keelty would resign.

But Prime Minister Kevin Rudd strongly rejected suggestions that Mr Keelty had been pushed out and said the Government would have been delighted if he had stayed on.

"What I'd like to say to Mick on behalf of a grateful nation is 'well done!'," Mr Rudd said.

Lawyers for Dr Haneef were very quick with a statement welcoming Mr Keelty's resignation and claiming that under him the AFP had been an "organisational disaster".

Rod Hodgson, of Maurice Blackburn Lawyers, said the firm was looking forward to a new era in AFP management and called on the Government to use the opportunity to implement lasting changes.

"The AFP under Mr Keelty was incapable of accepting responsibility and, when mistakes were made, they sought to blame them on someone else, such as the Commonwealth DPP."

But the chief executive of the Australian Federal Police Association, Jim Torr, said Mr Keelty deserved great credit and the nation's gratitude for his work leading the AFP during its time of huge expansion.

Mr Torr said Mr Keelty had set the groundwork for the close co-operation between the Australian and Indonesian police that followed the Bali bombings.

He said Mr Keelty had also played a key role in setting up the AFP's extensive overseas networks, which played crucial roles in liaison and investigations with overseas police forces and agencies.

And former senior bureaucrat and security analyst Allan Behm said Mr Keelty deserved praise for the way he had set up effective systems to deal with international crime ranging from terrorism to child pornography networks.

A major internal review of AFP operations is under way and Mr Keelty told his staff yesterday he thought the new commissioner should be in place to implement recommendations.