The Queen's representative in Australia has reportedly become the first serving governor-general to publicly back the country becoming a republic.
Quentin Bryce, 70, made the comments during a speech in Sydney in which she outlined a future vision for Australia.
"Perhaps one day, one young girl or boy may even grow up to be our nation's first head of state," she said, reigniting the republic debate.
Australians voted against becoming a republic in a 1999 referendum.
The country is a parliamentary democracy that retains Britain's monarch as its head of state.
In the 1999 vote, Australians opted to preserve the status quo, with Queen Elizabeth II remaining as the head of state - although the republican movement was split between those who wanted an elected president and those who preferred a parliamentary appointee.
The issue has largely fallen into the political doldrums in Australia in recent years.
Ms Bryce, the country's first female governor-general, was appointed in 2008 when Kevin Rudd was prime minister. Her tenure ends in March next year.
Her comments, made at the end of a four-part lecture series, have reignited a debate about the nation's ties to Britain.
"We will always be friends with Britain, but now we should be equals," said Geoff Gallop, the head of the Australian Republican Movement.
"We need an unambiguous, independent national identity that reflects and celebrates our freedom, our unity, our values of the fair go and our place in the world."
However, David Flint of the Australians for Constitutional Monarchy described her comments as "a pity".
"The constitutional system requires that the Crown be above politics... it goes against the position. There are a number of people who are now going to wonder about her.
"There's this sense of division that she's created... we've got commentators everywhere on these issues, couldn't she have left them alone until she was out of the office?" Mr Flint told the Australian Broadcasting Corporation.
Prime Minister Tony Abbott, a staunch royalist who used to be the executive director of the Australians for Constitutional Monarchy, said Ms Bryce was entitled to her opinion.
"It's more than appropriate for the governor-general approaching the end of her term to express a personal view on a number of subjects and that's what she was doing, she was expressing a personal view and, as you would expect from Quentin Bryce, she did it with grace and style," he said.
Ms Bryce also voiced support for same-sex marriage - a position that Mr Abbott, a devout Catholic, also opposes.