Australia today welcomed an offer from impoverished Papua New Guinea to open a refugee processing centre, as its controversial swap deal with Malaysia drifted in legal limbo.

Prime Minister Julia Gillard said the new government of Peter O'Neill, sworn in earlier this month, had agreed to establish a refugee "assessment centre" on Manus Island, ending months of talks between the two countries.

Manus was at the centre of the previous government's so-called "Pacific Solution", under which boatpeople who landed in the country were locked up on far-flung islands for years at a time in a policy aimed to be a deterrent.

Gillard said arrangements were being made for a "high-level delegation of Australian officials to travel to Papua New Guinea in the very near future to finalise a Memorandum of Understanding regarding the centre".

                        

Separate options

The prime minister said the talks with PNG, a nation heavily dependent on Australian aid, would in no way detract from her plans to send 800 boatpeople to Malaysia in exchange for 4,000 of its registered refugees.

The first groups were due to travel this week under the pact, which was sealed last month, but Australia's High Court froze the scheme until a formal hearing on Aug 22 about whether it complies with human rights law.

Gillard said she had always been pursuing Malaysia and PNG as separate options and her government was "committed to the development of a lasting regional response to irregular migration".

Despite their relatively small numbers, refugees are a thorny issue in Australia and successive governments have maintained a policy of mandatory detention for asylum seekers who arrive by boat.

- AFP