I live for discoveries like this one,
which started as a Facebook post of the tiny specimen. This is what the LRT (Fig. 3) was built for.
Benton 1985 wrote:
“Bartholomai (1979) has described Kudnu [QMF8181], a partial snout from the early Triassic of Australia, as a paliguanid. The exact relationships of these forms to each other, and to other early ‘lizard-like’ forms are unclear (Carroll, 1975a, b, 1977; Currie, 1981c: 163-164; Estes, 1983: 12-15). Indeed, the group cannot be defined by any apomorphy, and the genera must be considered separately. As far as can be determined, all of these genera are lepidosauromorphs. Kudnu lacks the lepidosaur character X4 and the squamate character Y 1, but none of the others may be determined. Blomosaurus and Kudnu are classified here as Lepidosauromorpha, incertae sedis.”

Figure 1. Kudnu colorized using DGS and slight restored postcranially, shown 10x natural size at a 72 dpi standard screen resolution. Here’s a taxon basal to Stephanospondylus, pareiasaurs and turtles. Prior workers excluded Stephanospondylus from their studies.
Contrad 2008 wrote:
“Other authors have followed this opinion and have described new ‘‘paliguanids’’, including Blomosaurus (Tatarinov, 1978) and Kudnu (Bartholomai, 1979). Even so, ‘‘Paliguanidae’’is widely regarded as a paraphyletic taxon and, unfortunately, the preservation of specimens constituting the known ‘‘paliguanid’’ genera (including Paliguana, Palaeagama, and Saurosternon) makes it impossible to characterize them except through plesiomorphy (Benton, 1985; Gauthier et al., 1988a; Rieppel, 1994). Thus, their position within Lepidosauromorpha is currently impossible to ascertain with any kind of precision.”
Evans and Jones 2010 wrote:
“Kudnu (Australia, Bartholomai, 1979) and Blomosaurus (Russia, Tatarinov, 1978) are too poorly preserved to interpret with confidence but are probably also procolophonian.”

Figure 2. Stephanospondylus was considered a type of diadectid, but it nests with turtles and pareiasaurs, all derived from millerettids,.. next to diadectids.
All that being said,
what does the LRT recover? In the large reptile tree (LRT, 1583 taxa, subset Fig. 3) Kudnu nests basal to Stephanospondylus (Fig. 2), a late survivor from deep in the lineage of pareiasaurs + turtles, not far from bolosaurids + diadectids + procolophonids. These clades are derived from Milleretta (Fig. 2) which was 2 to 3x larger.
Due to its small size,
Kudnu can be considered phylogenetically miniaturized, the kind of taxon we often find at the base of many major reptile clades.
Sadly, earlier workers (see above)
were looking at the wrong candidates for sister taxa, excluding the right taxa. This is a problem that is minimized by the LRT due to its large number of taxa over a wide gamut.

Figure 2. Carbonodraco enters the LRT alongside another recent addition, Kudnu, at the base of the pareiasaurs + turtles.Figure 1. Carbonodraco enters the LRT alongside another recent addition, Kudnu, at the base of the pareiasaurs + turtles.
Once again,
you don’t need to see the fossil firsthand in a case like this. What you need is a wide gamut phylogenetic analysis like the LRT, to figure out how an enigma like Kudnu nests with other reptiles.
If
Kudnu was earlier associated with Stephanospondylus, let me know and I will publish the citation. Otherwise, this is a novel hypothesis of interrelationships that inserts Kudnu without disturbing the rest of the LRT tree topology.
References
Bartholomai A 1979. New lizard-like reptiles from the Early Triassic of Queensland. Alcheringa: An Australasian Journal of Palaeontology 3:225–234.
Benton MJ 1985. Classification and phylogeny of the diapsid reptiles. Zoological Journal of the Linnean Society 84:97–164.
Conrad JL 2008. Phylogeny and systematics of Squamata (Reptilia) based on morphology. Bulletin of the American Museum of Natural History 310: 182pp.
Evans SE and Jones MEH 2010. Chapter 2 The Origin, Early History and Diversification of Lepidosauromorph Reptiles in Bandyopadhyay S (ed.), New Aspects of Mesozoic Biodiversity, Lecture Notes in Earth Sciences 132, DOI 10.1007/978-3-642-10311-7_2 Springer-Verlag Berlin Heidelberg 2010