A troubled defence project to acquire new torpedoes appears to be back on track but will never deliver the full capability originally sought, the national auditor says.

Three years ago, the $639 million project was experiencing major technical problems and running years late.

"When examining the project across its life and comparing it to the original plans, it is clear that it will not deliver the full capability originally expected," the Australian National Audit Office (ANAO) said in a report released on Thursday.

In 1997, defence decided it needed to replace 1970s era Mark 46 torpedoes with a newer model.

Then in 1999 it settled on the European EuroTorp MU-90 on the basis it would be a low risk "off the shelf" acquisition.

The new MU-90 torpedoes were to be carried by FFG and Anzac frigates as well as AP-3C Orion aircraft, and Seahawk and Seasprite helicopters.

But now only the warships will carry the armoury.

As a result, defence will have to manage a mixed inventory of three different types of torpedo, rather than one, the ANAO said.

So the warships will use MU-90s, Orion AP-3C maritime patrol aircraft will continue to use the Mark 46 and the Navy's new MH-60R Romeo helicopters will use the Raytheon Mark 54 Mako torpedo.