This article presents a non-linear output feedback tracking controller deisgn for autonomous underwater vehicles (AUVs) operating in shallow water area. In a shallow water environment, significant disturbances due to shallow water waves affect the motion of marine vehicles greatly. Since it is not energy efficient to counteract the oscillatory disturbances due to waves, it is critical to obtain the wave information or wave induced disturbance information and design an energy efficient controller to reduce the action of actuators to counteract wave disturbances to avoid wear and tear on actuators. In this article, a non-linear observer is first designed to estimate the low frequency (LF) motion of AUVs and to filter out wave-frequency (WF) motion of AUVs due to shallow water wave by using position and attitude measurements. Based on the designed observer, a non-linear output feedback controller is subsequently derived by using the observer backstepping technique. By using this approach, the AUV achieves global exponential tracking without excessive energy consumption to counteract the wave disturbance and also avoids excessive wear and tear on thrusters. Global exponential stability (GES) of overall observer-controller system is proved through Lyapunov stability theory. A set of simulations is carried out by using the KAMBARA (Silpa-Anan 2001) AUV model to demonstrate the performance of the proposed observer and output feedback controller.