Australian special forces stand accused of murdering 39 people in Afghanistan and torturing two prisoners.

A chilling investigation has found junior patrol members were ordered to execute Afghan detainees, while weapons and evidence were planted on bodies to cover up unlawful deaths.

Ms Reynolds believes the response must go beyond the individuals implicated in the report, saying there are lessons for the chain of command within the Australian Defence Force.

"It made me physically ill and it was a very, very distressing read," the West Australian senator told a Business News breakfast in Perth.

"We have to accept this for what it is.

"This is not fog of war. These are allegations of absolute, clear-cut murder and war crimes."

In one of the most gruesome incidents uncovered, Australian soldiers allegedly cut the throats of two 14-year-old boys and dumped their bodies in a river because they believed they were Taliban sympathisers.

In another, special forces allegedly massacred a village and then tortured survivors for days before killing them.

One Special Air Service squadron is being disbanded following the damning findings, while 19 serving or former soldiers will face possible prosecution and the stripping of their medals.

Compensation will be paid to Afghan families who lost loved ones.

Some of the soldiers accused of atrocities are still serving in the military. Each of their positions will be reviewed by the head of the army.

Defence chief Angus Campbell said he had considered abolishing the entire SAS regiment after receiving the exhaustive report.

Ms Reynolds said the Australian military must learn from the confronting inquiry.

"But the findings announced by the Chief of the Defence Force should not and must not - must not - cast a shadow on the service of the vast majority of men and women who have and continue to serve with such great distinction for our nation," she said.

Australian Associated Press