The picture was believed to be taken in 2009 at an unofficial bar known as the Fat Lady's Arms, inside Australia's special forces base in Tarin Kowt, the capital of Uruzgan province.
Fairfax had reported two years ago that Australian troops had been using the prosthetic leg of a prisoner from Afghanistan as a drinking vessel at SAS headquarters in Perth, after it was brought back as a souvenir in 2009.
The Australian reports more photos are believed to exist of other senior officials drinking from the leg.
Former SAS captain and Liberal MP Andrew Hastie said Letch was an "honourable man" and a good soldier.
"We deployed together to Afghanistan in 2013. He was my squadron sergeant major and looked after our welfare during tough times," he told the publication.
"John is an honourable man who did the wrong thing more than a decade ago. He accepts full responsibility for it. No one is perfect."
A source also told the publication that Letch had taken "full ownership of his actions and the discredit he had brought to the army".
The photo has outraged Afghans, with a member of the provincial council in Uruzgan, Hayatullah Fazly, branding the photo "disgusting".
"It is the most disgusting, shocking and horrific image I've ever seen," he told The Guardian.
"It is more painful when you consider that [the soldiers] were here to help us and make us feel safe. It's shameful."
The Fat Lady's Arms, where the photo is believed to have been taken, was mentioned in the Brereton Report as a place that was unauthorised but that was continually resupplied with alcohol.
– With Ben Graham
