The singles winners will each earn A$830,500 in Melbourne, leaving the French Open and Wimbledon as the only two Grand Slams to pay their women's champions less than their men's.
The WTA Tour has lobbied strongly for the past two years for equal prize money because of the entertainment value - and high television ratings - guaranteed by the likes of the Williams sisters, Martina Hingis and Lindsay Davenport.
``This is great for women's tennis,'' said world number one Hingis.
``We have all been working on achieving equal prize money for a while and it is great that at the turn of the century, progress has been made. It is something we deserve and I appreciate that the Australian Open has done this.''
Players will compete for record prize money of A$13.86 million (US$7.35 million) in Melbourne next January, up almost 12 percent on this year's total. The men's prize money will rise 10 percent and the women's 15.8 percent.
World number two Davenport said: ``I think that it's great that the Australian Open has gone back to equal prize money. Women's tennis has certainly proven that it is worth it.''
Tennis Australia President Geoff Pollard said the tournament had been moving steadily towards reinstating equal prize money since it was last offered in 1995. The U.S. Open has paid its men's and women's champions the same for 28 years.
``Due to the recent growth of the event, we are now in the financial position to again offer this at our Grand Slam,'' Pollard said.
The 10,000-seat, retractable roof arena in Melbourne, which was not completed in time for the 2000 Open, will be available for next year's event to be held January 15-28. The Open now has two retractable-roof stadiums.
Reacting to the Australian announcement, a spokeswoman for Wimbledon, the world's most prestigious tournament, said ``we are always keen to look into possibilities.''
She said it was too soon to comment on the issue of equal prize money but said ``certainly it will be looked at.''
In January Hingis talked of a possible boycott by women players if the increasing popularity of women's tennis was not matched by equal prize money.
SUBTLE PRESSURE
Australian Open chief executive Paul McNamee told Reuters there had not been heavy lobbying from women's tennis officials but he said Women's Tennis Association chief executive Bart McGuire had been a quiet but important advocate for a return to equal prize money.
``He deserves credit for his role,'' McNamee said. ``We always said we had an emotional attachment to equal prize money.''
McNamee said the decision to scrap equal prize money for the 1996 tournament was made because of pressure to offer similar purses to those at Wimbledon, the U.S. and French Opens.
Wimbledon prize money was $12.7 million this year and the U.S. Open paid out $15 million.
``Something had to give because we didn't have the resources to increase the men's and women's prize money to the same level,'' he said.
``It wasn't necessarily a five-year plan (to bring it back). We said we would review it annually.''
McNamee said Open officials felt last week in making their decision that they had to ``put up or shut up.''
``We just had to be prepared to make our own decision and stand by it. We've brought that to a head,'' he said.
McNamee said Wimbledon and the French Open offered women purses that were 85 to 90 percent of those won by the men.
``There will not necessarily be a flow-on,'' he said.
``It won't be a shock to the other Grand Slams. They knew we were considering it.''