Prime Minister Scott Morrison contacted Indonesian President Joko Widodo after the vessel was found in three pieces at the bottom of the Bali sea, hundreds of metres beyond its diving range.

All of its crew have died, including Indonesia's submarine fleet commander, Harry Setiawan.

"Deepest sympathies to President Jokiwi and all our Indonesian friends on the loss of KRI Nanggala," Mr Morrison said on Sunday night.

"A tragic reminder of the ultimate sacrifice our service people make for their country. It was an honour to contribute to search efforts. Australia stands by you in your time of loss."

The loss of the 44-year-old vessel has renewed calls for Indonesia to modernise its ageing military hardware.

The submarine went missing last week while conducting a torpedo drill.

It lost contact after being granted clearance to dive and plunged well below its self-operating levels.

Australia took part in an international search for the vessel, which involved dozens of helicopters and ships equipped with sonar systems.

Australian Associated Press