Neil Colston uncovered the relic last week while metal detecting on the causeway where the Peacock family had lived for many years.

"It was only about three inches deep," Mr Colston said. "It was really exciting."

The find needed "just a gentle clean", which revealed more clearly the king's head on one side and a horse and rider on the other.

Also displayed were the initials of the owner, Percy Mervil Peacock, who served overseas in the 7th Light Horse Regiment.

Further research indicated the medal was one of three caught up in a 1966 fire, to the veteran's distress.

"In the ashes they found his Star medal, but that was totally destroyed," Mr Colston said.

"They replaced that because it was found but the other two they wouldn't.

"So that means the Victory medal is still out there somewhere."

The soldier's great-nephew, Ian Peacock, of Staghorn Flat, in north east Victoria, had earlier met Mr Colston during his search, describing the situation as "a series of coincidences".

"It was just chance that I actually ran into him having a look around and it just sort of went from there," he said.

"Basically Neil gave me a call and said, 'You won't believe what we've found'.

"He was really keen to get it back to the family and I was really grateful for that."

IN OTHER NEWS:

The service medal will be added to the soldier's other medals held by his relatives.

"We had no idea it was missing, he died when I was fairly young and I didn't know a whole lot about him," Mr Peacock said.

Mr Colston, who has a YouTube channel Diggers Down Under, has been detecting since 1979, with the passion starting aged seven after he watched a television show on treasure hunting.

"I clawed at the ground underneath the tank stand and scraped out every bit and I found a gold ring," he recalled. "I was addicted."

Searches these days are aided by his metal detector, worth about $3500.

"The old machines that just go 'beep, beep' are gone," he explained.

"These machines tell you what metal the target's made out of, how much silver is in the target, for example.

"It will tell you how big it is, how deep it is, exactly where it is.

"It has 55 different tones on the machine, not just one."

Always keen to return treasures to their owners, Mr Colston is happy to search for any other lost items.

On the same day the service medal was found, he also discovered two silver half crowns dated 1826 and 1829.

"Someone's gone down to the banks of Albury-Wodonga, sat there to go for a fish or something, and dropped those there nearly 200 years ago," he said.

"I find that fascinating."