Malaysia and Australia today signed a controversial deal to send hundreds of boatpeople to the southeast Asian nation, despite intense criticism from rights groups.

Under the agreement inked in Kuala Lumpur, Malaysia will take 800 asylum seekers who have arrived in Australia by boat, in return for Canberra accepting 4,000 processed refugees for resettlement.

NONE As Home Minister Hishammuddin Hussein (left) and Australian Immigration Minister Chris Bowen signed the pact, a small group of activists held a protest outside the hotel venue to denounce the transfer agreement.

One placard held by one of about a dozen protesters said: "Refugees are not political football, treat them with respect and dignity."

The agreement, part of Canberra's push to develop a regional solution to people smuggling, is designed to deter boatpeople from making the dangerous sea journey to Australia.

But the plan has sparked concern because Malaysia is not a signatory to the UN Refugee Convention, nor has it ratified the UN Convention against Torture.

The United Nations High Commissioner for Refugees (UNHCR) has not approved the proposed swap.

Speaking after the signing Hishamuddin hailed the "landmark" pact, while Bowen said it was a "bold" and "innovative" agreement.

"This is a win for Malaysia, a win for Australia and a loss for people smugglers," the Australian minister said, adding that the transfer will be overseen by the UNHCR.

Bowen said the boat people transfer to Malaysia would begin immediately while asylum seekers to Australia will be held for at least 45 days at transit centres around Kuala Lumpur.

'Will be treated with dignity'

They will subsequently be allowed to "move into the community, with work rights, access to education and health care," he said in a statement.

Playing down rights concerns, Bowen said the people sent back to Malaysia will be treated with dignity and respect in accordance with human rights standards and will be allowed to work.

NONE Speaking in Australia, Prime Minister Julia Gillard said the deal could smash the lucrative businesss model used by people smugglers.

"They prey on desperation ... and what they (asylum seekers) hope is having their claims processed in Australia.

"My message today to anyone considering paying money to people smugglers and risking their lives, do not do that in the false hope you'll be able to have your claim processed in Australia," she said.

Amnesty International has warned that asylum seekers sent to Malaysia could face lengthy waits to determine their status, as well as inhumane detention conditions, and even caning.

Other rights activists also decried the move.

Irene Fernandez, director of the non-governmental organisation Tenaganita, condemned the deal saying Malaysia has a poor human rights record.

"Australia has signed a deal with a country which has a brutal record of treating refugees," she told AFP.

"The swap deal is a form of human trading. To me it is turning refugees into commodities," she added.

The UNHCR said it was not a signatory to the pact, adding that it would prefer all asylum-seekers arriving by boat into Australian territory to be processed in Australia.

- AFP