Prime Minister Tony Abbott has offered the family of Aboriginal activist Faith Bandler a state funeral, saying that Australia "has lost a champion of aboriginal and Torres Strait Islanders."

"Ms Bandler was a tireless social activist, best known for leading the political campaign which resulted in the landmark 1967 referendum that ensured Indigenous Australians were counted as full citizens and gave the Federal Government responsibility for Indigenous Affairs," Mr Abbott and Indigenous Affairs Minister Nigel Scullion said in a joint statement.

"Ms Bandler served in the Australian Women's Land Army in World War II, despite receiving less pay than her non Indigenous colleagues," they said.

New South Wales opposition MP Linda Burney has also honoured Aboriginal rights activist Faith Bandler a "the most gracious powerful woman," after Ms Bandler died in a nursing home in Sydney, at the age of 96.

"Faith, whom I knew, was just the most gracious, powerful woman," Ms Burney told the ABC.

Ms Bandler's was perhaps best known for her 10-year campaign for Aboriginal rights leading into the 1967 referendum.

She was the general secretary in the Federal Council for the Advancement of Aborigines and Torres Strait Islanders when she successfully campaigned for indigenous people to be included in future national censuses and for the federal government to be granted powers to legislate for Indigenous people.

The referendum subsequently passed with a yes vote of more than 90 per cent.

Her fight for Aboriginal rights started in 1956 when she co-founded the Aboriginal Australian Fellowship.

In 1957, she and fellow activist Jessie Street launched a petition in support of the referendum culminating in the 1967 victory. After the referendum, she continued to actively support Aboriginal land rights and has wrote six books.

She also worked for better Aboriginal housing, education and the rights of South Sea Islanders, was a founding member of the Women's Electoral Lobby and the Australian Republican Movement.

Bandler was born Ida Lessing Mussing on a banana share-farm at Tumbulgum in northern New South Wales in 1918.

Ms Bandler's father, Wacvie Mussingkon, was a South Sea Islander. He was kidnapped from the island of Ambrym, in what is now known as Vanuatu, and brought to Australia to work as an unpaid labourer in the Queensland cane fields. His kidnapping was part of "blackbirding", a means of finding cheap labour after the end of convict transportation from Britain. He later changed his name to Peter Mussing.

Her mother, Ida, was Scottish-Indian, born in Brisbane. Ms Bandler was one of eight children.

She inherited her well known surname when she married Jewish refugee, Hans Bandler. She is survived by one daughter, Lilon.

A flood of biographies have been written on her life and work.

Former Fairfax Media journalist, Tony Stephens who interviewed Ms Bandler, called her a "great Australian" for promoting the rights and interests of Indigenous Australians.

Ms Bandler was offered a MBE (Member of the Order of the British Empire) for services to the community in 1976, but declined it in protest against the dismissal of Prime Minister Gough Whitlam.

She later accepted the Order of Australia (AM) in 1984 for services to Aboriginal welfare.

Polticians around Australia have begun posting condolence messgaes on Twitter.

Vale Faith Bandler. Her tireless work for justice and decency and her role in 1967 successful referendum are an inspirational legacy. — Christine Milne (@senatormilne) February 13, 2015

sad to hear abt death of local Faith Bandler. Faith was the Austn civil rights legend who convinced Menzies to hold the '67 referendum. — Barry O'Farrell (@barryofarrell) February 13, 2015

Vale Faith Bandler. Thank you. — Senator Penny Wong (@SenatorWong) February 13, 2015

With Luke Malpass