Crew members of HMAS Yarra, lost in a one-sided battle with Japanese warships, will be awarded the Unit Citation for Gallantry to right a wrong dating back to World War II.
The Defence Honours and Awards Appeals Tribunal says recommendations for recognition of extraordinary gallantry were mishandled in the Yarra case.
In light of the extraordinary gallantry, resolve and audacity of Yarra's ship's company in February and March 1942, the long-standing injustice would be remedied, the tribunal said.
The case was considered in an inquiry into retrospective awards of the Victoria Cross for 13 servicemen, including Yarra's Lieutenant Commander Robert Rankin and crewman Leading Seaman Ronald Taylor.
Both died in Yarra's final action.
Rankin, who has a Collins submarine named in his honour, was clearly gallant although not to the stringent criteria of the VC for Australia, the tribunal said. In Taylor's case there was insufficient evidence for an individual award.
But all the crew receive the unit citation for two actions aboard the 1500-tonne sloop in South-East Asia at the outbreak of WWII with Japan.
As Japanese aircraft attacked Singapore on February 5, Yarra, then commanded by Wilfred Harrington, went alongside the burning troop transport Empress of Asia, rescuing more than 1800 soldiers.
On March 4, Yarra was escorting a convoy of merchant ships to Australia when three Japanese heavy cruisers and two destroyers approached.
Cmdr Rankin ordered the convoy to scatter while the sloop held off the Japanese warships. The Yarra was struck repeatedly by enemy shells but the 151-strong crew fought on.
Of the 13 survivors, none are alive.
Four Australian ships have been named Yarra - the latest is one of the navy's Huon class minehunters.