The title was conferred in a ceremony overseen by President Prabowo Subianto, Suharto's former son-in-law, despite protests by pro-democracy activists and the families of those affected by the strongman's iron-fisted rule.
Prabowo took office one year ago.
"A prominent figure from Central Java province, a hero of the struggle for independence, General Suharto stood out since the independence era," an announcer said as Prabowo handed the award to Suharto's daughter and son.
Indonesia gained independence in 1945 from then colonial powers the Netherlands and Japan.
Every year, the title of national hero is awarded to Indonesians who have contributed significantly to the Southeast Asian archipelago's development. Suharto, who died in 2008, was one of 10 people to get the title on Monday.
Suharto, a military officer, formally became president in 1967 after he seized control of Indonesia from the country's first president and independence leader, Sukarno.
He steered Indonesia through three decades of rapid economic growth and stability, only to see much of his work unravel as the country was plunged into chaos during the Asian financial crisis in 1997-98.
On Monday morning, ahead of the ceremony, a Reuters reporter saw Suharto's portrait among a display of framed pictures of 10 people who will be awarded the title of national hero at the centre of Jakarta's state palace.
Suharto was wearing his military uniform in the portrait, placed between a picture of former president Abdurrahman Wahid and labour activist Marsinah, who was kidnapped and murdered during Suharto's rule.
"The government has decided. I cannot... that is not my right. I am only here for Marsinah," said the activist's sister Marsini on being asked by journalists about Marsinah getting the award alongside Suharto.
Presidential spokesperson Prasetyo Hadi urged Indonesians on Monday to "look forward together" when asked about Marsinah, adding newly-minted heroes have shortcomings, too.
Activists gathered last week in Jakarta to protest against the proposal to grant the title, reflecting wider concerns about historical revisionism in the country.
Among them was Tadius Priyo Utomo, 47, an Indonesian living in East Timor for the past 19 years who was one of tens of thousands of students who protested across the country against Suharto in 1998.
"Our past struggles will be disregarded... we are the traitors to the country because we fought Suharto and he is now a hero," Utomo told Reuters at a protest last week in Jakarta, to which he flew from Dili, the capital of East Timor, especially to attend.
Under Suharto, Indonesia invaded East Timor in 1975 at the end of Portuguese rule and annexed the territory later that year, maintaining a heavy and sometimes harsh military presence. East Timor only won independence after Suharto was forced to step down.
Suharto, a former soldier, used the military to dominate civilian affairs and crush dissent. He was also accused of massive corruption and nepotism benefiting his family and cronies, although no charge was proven and he never went on trial due to his failing health.
