Australia on Monday rejected criticism of its plan to send 800 asylum seekers to Malaysia for processing, insisting it is not a return to a disputed policy of banishing boat people to poor Pacific nations.

It also cited the fact that it was taking in 4,000 refugees in exchange as evidence that the deal announced Saturday would deter asylum seekers as part of a plan it hopes will lead to a regional solution to people smuggling.

But the arrangement was slammed by human rights groups who drew comparisons with the "Pacific Solution" of Australia's previous right-wing government, under which boat people were sent to Pacific island detention centres.

"I don't think it looks anything like that at all," Deputy Prime Minister and Treasurer Wayne Swan told reporters in Canberra.

He insisted the plan was a regional solution under the Bali framework on tackling people smuggling and would involve the UN refugee agency, which was not involved in former prime minister John Howard's Pacific Solution.

"Nothing would contrast more than that with the previous approach of the previous government," Swan said as the government defended its decision.

Rights groups claim Malaysia, which has not ratified the United Nations Refugee Convention, has a poor record in its treatment of asylum seekers.

The plan has been compared in the media with the Pacific Solution, which was branded as "inhumane" by human rights groups before it was repealed by Prime Minister Julia Gillard's centre-left Labor Party in 2007.

Under that policy, asylum seekers were transferred to detention centres on Manus island in Papua New Guinea, which Gillard's government is in now talks with over reviving its detention centre, and the tiny state of Nauru.

The 4,000 people who will move to Australia from Malaysia, many of whom have reportedly fled military-run Burma, have been deemed to be refugees by the United Nations for resettlement.

"Malaysia has very clearly indicated that asylum seekers will be treated with dignity and respect," Immigration Minister Chris Bowen told ABC Radio on Monday.

"If people think that the situation for asylum seekers in Malaysia is difficult, they should endorse the fact that Australia is taking 4,000."

An armada of asylum seeker boats arriving on the Australian coast from Asia in recent years has become a sensitive political issue for Gillard's government, which has been accused of not doing enough to deter them.

- AFP