Malaysia has agreed to take hundreds of asylum seekers who land in Australia illegally in what Prime Minister Julia Gillard today called a "big blow" to people smugglers.

Under the bilateral agreement, up to 800 boat people who try to reach Australia will be taken immediately to Malaysia instead, with their claims processed there by the United Nations.

NONE In return, Australia will accept and resettle, over four years, 4,000 registered refugees currently living in Malaysia, Gillard and her Malaysian counterpart Najib Razak said in a joint statement.

"This landmark agreement will help take away the product people smugglers are trying to sell - a ticket to Australia," said Gillard.

"The key message this will deliver to people smugglers and those seeking to make the dangerous sea voyage to Australia is: do not get on that boat.

"Under this arrangement, if you arrive in Australian waters and are taken to Malaysia you will go to the back of the queue."

The figure of 800 is a one-off total with no time limit attached.

The agreement, which has been negotiated with the Malaysian government over the last seven months, is expected to be finalised in the coming weeks with Australia covering all the funding arrangements.

Immigration Minister Chris Bowen said the plan would cost around A$300 million (RM$963 million) and admitted it would spark opposition. malaysia worst refugees place 180609 03

"Now I know this will be controversial. I expect protests, I expect legal challenges, (and) I expect resistance," he said.

"But if you are a people smuggler selling the product of guaranteed processing and settlement in Australia, you cannot do so.

"As the prime minister says, nobody should doubt our resolve to break the people smugglers' business model."

Leaking fishing boats from Indonesia

Thousands of asylum seekers from countries such as Sri Lanka, Afghanistan and Iraq flock to Australia each year, usually arriving on leaky fishing vessels along the popular people-smuggling corridor from Indonesia.

So many have arrived that already overcrowded immigration centres have become swamped, prompting recent violent unrest in the often remote units.

Gillard has previously pushed for a regional processing centre in East Timor, but the idea was coldly received in Dili.

sri lanka refugees civilians 290109 02 On Friday, it emerged that her administration was considering reopening Papua New Guinea's mothballed Manus Island facility to asylum seekers, which she confirmed on Saturday.

"If this proceeds, it is the government's expectation that Australia would maintain the centre but that it would be the first step towards a regional processing centre," Gillard said of Manus Island.

Conservative opposition leader Tony Abbott called today's announcement "panicked" and said it risked turning Malaysia into a back-door entrance to Australia.

"This announcement, of what is in effect a people-go-round, might be a good deal for Malaysia but it's a lousy deal for Australia," he told reporters.

When Abbott's party ruled the country, boat people were processed on Manus or the tiny island nation of Nauru in Australian-funded centres, but many languished on these remote outposts for years.

The Labor government pointedly abandoned this approach soon after taking power in 2007, but has since struggled to stem the tide of asylum seekers.

- AFP