Following takeoff from runway 01 at Townsville, the military aircraft, Stallion 080, was instructed to turn right and climb to flight level (FL) 120. VH-TNX departed from the same runway and was instructed to turn left to intercept the track to Cairns. When Stallion 080 reported at FL120 the Townsville controller requested the level of VH-TNX. The pilot of that aircraft replied passing FL110 and was instructed to report leaving FL130, and to climb at the best rate of climb. The controller then asked Stallion 080 to report sighting VH-TNX, after a short delay the pilot reported that the aircraft was in sight and that he would maintain separation visually. Subsequently, Stallion 080 passed VH-TNX on the left side at about the same level, approximately 200 metres away. The method by which the Townsville controller attempted to maintain separation between the two aircraft was not correct for the situation. The Manual of Air Traffic Services does not allow for one aircraft to visually separate itself from another aircraft at the level the aircraft were operating. However, there were a number of other techniques, that could have been employed by the controller, to maintain the required separation between the two aircraft. The pilot of Stallion 080 reported that he was unable to manoeuvre his aircraft to pass further from VH-TNX as this would have required abrupt action and may have resulted in injury to standing passengers in his aircraft.