People arriving by boat to seek asylum will no longer be resettled in Australia but will go to Papua New Guinea, Prime Minister Kevin Rudd has announced.
The news came as Mr Rudd set out an overhaul of asylum policy ahead of a general election expected shortly.
Australia has seen a sharp rise in the number of asylum-seekers arriving by boat in recent months.
Mr Rudd said the "hard-line decision" was taken to ensure border security.
The prime minister, who ousted Julia Gillard as Labor Party leader amid dismal polling figures last month, made the announcement in Brisbane flanked by the PNG Prime Minister Peter O'Neill.
"From now on, any asylum-seeker who arrives in Australia by boat will have no chance of being settled in Australia as a refugee," Mr Rudd said.
Under the agreement, new arrivals will be sent to PNG for assessment and settled there if found to be a refugee.
To accommodate the new arrivals, an offshore processing centre in PNG's Manus island will be significantly expanded.
No cap has been placed on the number of people Australia can send to PNG, Mr Rudd said.
The prime minister said the move was aimed at dissuading people from making the dangerous journey to Australia by boat.
"Our country has had enough of people-smugglers exploiting asylum-seekers and seeing them drown on the high seas," he said.
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