Melbourne-born Prakash, also known as Abu Khaled al-Cambodi who was linked to several Australia-based attack plans and calls for lone-wolf attacks against the US, was killed in an airstrike in Mosul on April 29, Attorney-General George Brandis said, citing American inputs.
"Neil Prakash was the highest value target from an Australian point of view in the Middle East. He was the individual more than any other who had been actively inspiring and inciting domestic terrorism attacks within Australia," the Senator said.
"Australia did cooperate with United States in relation to the identification and location of Prakash," he said.
Brandis said Prakash was "the most prominent and dangerous Australian" and had networks in both Melbourne and Sydney. "He was very actively involved in terrorism recruitment."
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Prakash's death is considered significant in disrupting the militant group's ability to lure fighters because of his highly prominent and influential role as a senior recruiter.
Prime Minister Malcolm Turnbull called Prakash's death as a "very, very positive development".
"His death disrupts and degrades ISIL's ability to recruit vulnerable people in our community to conduct terrorist acts," Brandis said.
Earlier, in January, media reports quoting an ISIS member had said that Prakash was killed in Syria.
The terrorist, who allegedly had contact with some of those accused of plotting a terror attack on Anzac Day - that commemorates martyrs, flew to Syria in 2013.
Prakash has also appeared in ISIS propaganda videos, including one last year in which he called for attacks in Australia.
Prakash was killed in the ISIS stronghold in northern Iraq, while Jabar died seven days earlier in the Syrian city of al Bab along with her husband Abu Saad al-Sudani, AAP news agency said.