Prime Minister Tony Abbott said the council would aim to “promote good reading as well as good writing”.
Mr Abbott - a published author and former journalist - made the announcement during an address at the Prime Minister’s Literary Awards in Melbourne.
“Every government should want to encourage all of the voices in Australian life, but these voices can only be heard if they’re listened to,” he said.
“Literature has always made a vital contribution to our nation’s cultural and intellectual life.”
Mr Abbott emphasised the importance of books, including those written by former prime ministers such as Julia Gillard.
"Most Australian prime ministers over the past half century have, in fact, written books," he said.
"They understood the power of the written and the spoken word."
Mr Abbott also shed some light on his varied reading list, sharing his response to a 2012 Twitter question about what he was reading.
“I replied ‘I’ve just read Nikki Gemmell’s With My Body, a captivating successor to The Bride Stripped Bare’,” he said.
“It’s not often that the twitterverse comes to a standstill, but for a moment there was it seems a pause, perhaps an inaudible but palpable gasp of surprise.”
Mr Abbott also paid tribute to Richard Flanagan, quoting from a letter the Man Booker Award winning author had sent him stating the arts were too often viewed as “the province of the left” by Australian politicians.
