Bryce left the job yesterday, to be replaced tomorrow by former Defence Force chief Peter Cosgrove, who will become the first knight.
Governors-General will automatically become knights or dames. Numbers will be restricted to about four a year.
English-born Abbott said he had decided on the controversial move several weeks ago when thinking about the change in Governor-General and the adequacy of existing awards. He said those awards recognised eminent achievement but the new titles were for "pre-eminent achievement", and were unlikely to be conferred on politicians.
"This new award will go to those who have accepted public office rather than sought it and who can never by virtue of that office ever entirely return to private life," Abbott said.
Although some senior ministers were consulted most government colleagues were caught off guard, and were yesterday bemused and searching for answers as they arrived at Parliament House.
Senior Nationals Senator Ron Boswell was nervous in case the titles devalued other Australian honours.
But Attorney-General George Brandis said the move was in tune with the mood of the nation, reflected by polls showing a weakening of support for a republic - "and I think it will decline even further next month after we have the visit of Prince William and his family".
The new titles were praised by monarchists and condemned by republicans, the Greens and Labor.
"In a week where the Prime Minister has wound back 20 years of racial discrimination protection [through proposed changes to legislation] we're going back to knighthoods, taking us back 30 years," Shadow Treasurer Chris Bowen said.
"He may in question time today announce that vinyl records are coming back or that his car plan is to reintroduce [1960s-era Ford] Cortinas and [Holden] Toranas."
Added Opposition leader Bill Shorten: "It's good to see the Government has a plan for knights and dames - where's their plan for jobs?"
The Australian Republican Movement said the move was a return to "a colonial frame of mind". Greens leader Christine Milne said Abbott was trying to create a "bunyip aristocracy".
A bunyip is a mythological Aboriginal water monster, but has been widely used to describe pretension.