THOMAS KENEALLY is a pacifist, but he's also a writer who can play God with characters' lives.

"So I am cruel and sadistic, too," insists the award-winning Australian novelist. "Look, I may be anti-war, but if there was no war, many of us would have nothing to write about."

The prolific author of 29 novels ("Or is it 32? Who's counting? I'm honestly not sure") this wizard from Oz has certainly written a vast amount: 17 works of non-fiction, including his ongoing monumental history of Australia, several plays and children's books. He's just flown into London from his Sydney home for the publication of his latest work of fiction, The Daughters Of Mars, a sort of Aussie Testament Of Youth and another of his ambitious retellings and novelisations of history.

"I'm 77 years old, perhaps I shouldn't be doing this any more – writing, I mean. But I'm feeling chipper, so why not?" he says as we begin the interview.

Keneally's masterwork is the Booker Prize-winning Schindler's Ark, about Nazi genocide. His new book, which may or may not be his 29th, is a powerful, prodigiously long epic, in which he sends his characters to hell and back as he revisits the carnage of the First World War. The slaughter and the terror of the shell-shocked years of 1914 to 1918 will never lose their hold over us, he believes: "War is a thing we will never stop doing."

Like so many of his peers, from Pat Barker and Ian McEwan to Alan Hollinghurst and William Boyd, he feels compelled to write about the "great recycling of human flesh" and the mud, the misery, the madness of it all.

"The First World War changed the world," says Keneally, who has been shortlisted four times for the Booker Prize as well as winning Australia's highest literary prize, the Miles Franklin Award, four times. "We're almost on the eve of the 100th anniversary of the Great War, yet it still haunts the collective imagination," he says, adding that it also changed the lives of women for ever. And it is women, the army of war nurses who ran the vast network of casualty clearing stations, makeshift operating theatres and wards, in tents and in ramshackle huts, on listing ships and in crumbling chateaus, who are the beating heart of his 520-page novel.

The eponymous Daughters of Mars are the Durance sisters, Naomi and Sally, spirited young women, daughters of a "cow-cockie" – Aussie for a dairy farmer – who share a terrible secret, a crime they commit in the novel's opening chapter as their beloved mother lies dying from cancer.

"It's not giving anything away to reveal that they commit a mercy killing," Keneally says. "One steals the morphine and, as far as we know, the other injects it. Their shared guilt drives them apart but they both end up volunteering to become war nurses, thinking they'll never see each other again. Of course they do, since both end up tending young men horribly maimed on the battlefields of Gallipoli, dealing with appalling mental and physical disfigurements. They see pain and suffering on an incomprehensible scale and they try to lose themselves in these cosmic events.

"The sisters are red-necks, hicks from the margins of the earth – just like me," continues Keneally. The Durances, whose story takes them from Gallipoli up to the Western Front, are from the Macleay Valley on the north of New South Wales's coast, the landscape of the author's own childhood, which he's written about so vividly in his memoir, Homebush Boy.

Named an Australian National Living Treasure in 1997, he was researching the First World War section for his general history of Australia – he's reached volume two – when he came across some "extraordinarily literate" journals written by Australian nurses. "These young women's stories were too good not to write a novel about, and I couldn't believe no one else had done so. Events are well described: they were good raconteurs.

"We talk about the patriarchy now, but these women really were victims of patriarchy, particularly the military patriarchy. On Lemnos, the island off Gallipoli where so many of the wounded were taken, Australian nurses were treated so badly in terms of rations, clothing and verbal and physical abuse that the Australian Government considered pulling them out.

"They were seen as scullions. I was astonished at the struggle they had for status, these girls who came from such remote places and found themselves at the centre of the world – seeing the savagery and the glory of Europe.

"Eventually, they were given military rank, so this is not only a novel about the insanity of war but about women finding themselves. Such stroppy women, too! I love stroppy women," he enthuses. "Tough, strong, stroppy Sheilas – sorry if that's politically incorrect. But I know there are lots of stroppy women in Scotland."

He jokes that he must watch his words, however, since Australia's Prime Minister Julia Gillard's recent blistering attack on sexism and the misogyny of the Leader of the Opposition Tony Abbott. "I very much admire what Gillard said. I liked her stroppiness, despite her very questionable policies on issues such as asylum seekers," he says. Keneally has long campaigned on behalf of refugees, speaking of the "white heat" of his anger at the cruel injustices of the international asylum system.

Keneally has previously written about sisters, in Bettany's Book, published in 2000 and told from the perspective of two beautiful siblings. Why did he choose to do so again? "Sisters amaze and fascinate me – it's the bond they have," he responds. "I have two daughters so I've done a lot of close observation. The Durances, however, are filled with this inner rage about each other, yet they have an overwhelming love for each other, too."

As to his intensive medical research, he also kept that in the family. His wife Judith and sister-in-law Jane, to whom he's dedicated the book, were nurses in the 1950s and 1960s -- "not that far away from the First World War". His "little brother" John Patrick Keneally ("A good Fenian name!"), who died recently of cancer, was a renowned surgeon and medical historian.

"Johnnie introduced me to other medical historians. Sure, all the procedures were tough to write about but I wanted to get them right. It's important that the atrocious injuries these boys suffered are documented -- everything from shell-shock to membrane ruination by gas."

Also, he continues, he's a writer and all writers are narcissists. "We're exhibitionists; we have to show off our research."

Keneally has been writing for half a century: his first novel, The Place At Whitton, was published in 1964. He trained as a Catholic priest but was never ordained. He was empowered to write, "or rather to try to write," when he read the Nobel Prizewinning Australian Patrick White's novels, particularly his masterpiece, Voss. This year marks the centenary of White's birth. Sadly, his reputation has faded over the years, acknowledges Keneally.

"White is better than [William] Faulkner, you know, but he's not an easy writer. He can be difficult, like all great writers. Nowadays, of course, people want writers to be cosy -- they want us all to be Alexander McCall Smiths. I'm not a cosy writer; I never will be. The Daughters Of Mars is not a cosy read.

"I deliberately chose to tell the stories of the war nurses as fiction because I wanted to investigate historical truths, to describe in graphic detail what these young women coped with – the damage to young flesh. I've used some of the factual material from their journals in my general history and I've snaffled some stuff for the novel, but I'm also interested in the 'divine lies' of fiction. After all, novelists tell truths by telling lies, which is why I chose to tell Oskar Schindler's story as fiction."

Finally, I ask Keneally whether he feels that all his novels are destined to fall under the long shadow cast by Schindler's Ark, so brilliantly filmed by Steven Spielberg as the Oscar-laden Schindler's List?

"I don't mind if they do," he replies. "It's given me something to do in my old age, to try to unseat that one book." He pauses, then says: "I wrote The Daughters Of Mars for exactly the same reasons I wrote Schindler's Ark. I know I could never have been a soldier and I could never have fought in either the First or the Second World Wars or been a nurse or a doctor -- I'm a coward at heart.

"So I wanted to ask what I would have done had I been Oskar Schindler. Would I have worked as he did to save Jews? Would I have had the heroism of those remarkable women when they nursed wounded, ruined men, with faces resembling raw meat, young men whose bodies and souls were broken, sundered by 'the war to end all wars' – that terrible lie fed to them?"

The Daughters Of Mars by Thomas Keneally is published by Sceptre, £18.99