The National Gallery of Victoria (NGV) said it accepted that 'Head of a man' was part of a forced sale by German Jew Richard Semmel in 1933 and should be returned to his heirs.
"As far as we are aware, this is the first case of its kind in Australia," the gallery said in a statement posted on its website this week.
"The NGV takes its responsibilities seriously in regard to determining the history of ownership of works of art, including the period from 1933 to 1945 when systematic looting, the confiscation of artworks, and persecutory anti-Semitic policies occurred under Nazi rule," it added.
It had already looked at five claims relating to Semmel's collection which he sold in the Netherlands to finance his flight from the Nazis.
"In all five cases, the committee accepted that Richard Semmel's auction sales in 1933 were the result of financial pressures caused by the anti-Semitic policies of the National Socialist government," the gallery said.
When the Melbourne gallery purchased the painting in 1940, it had already changed hands several times since the auction and was considered to be by Van Gogh.
"The NGV did not consider the work's attribution to be relevant in coming to a decision regarding the restitution of the work," the gallery said.
"We also see this as a moral issue, on which it is important to take a strong position," it said.
"The NGV has been the custodian of 'Head of a man' for over 70 years. It is now appropriate to play an active role in this next phase of the work's history by restituting the work to its rightful owners."
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