All new asylum seeker claims from Sri Lanka and Afghanistan are being suspended, as news emerges that 70 people were rescued from a sinking asylum boat off Christmas Island early this morning.

Immigration Minister Chris Evans says the Government has decided to implement the processing suspension due to "changing conditions" in both countries.

New applications from Sri Lanka will be suspended for three months, while those from Afghanistan will be suspended for six months.

The Government will review whether the suspensions need to be extended at the end of those periods.

This means any new asylum seekers now arriving in Australian waters from those two countries will not have their refugee applications processed until the suspension is lifted.

The Government's decision comes as the United Nations High Commissioner for Refugees reviews the international protection guidelines for both countries.

Senator Evans says the changes will mean that more asylum claims from the two countries will be refused.

"The changes we are announcing today send a strong message to people smugglers that they cannot guarantee a visa outcome for their clients, and a message to those seeking to employ people smugglers that they may find themselves not to be refugees and returned to their country of origin," he said.

Senator Evans denies the suspension is inhumane and says new arrivals will still be subject to the same legal protection as other asylum seekers.

"They will still be treated with dignity. They will still be treated as human beings," he said.

The vast majority of asylum seekers arriving in Australian waters by boat are Sri Lankans and Afghans.

The Government will also bring in tougher measures to target those facilitating the flow of money to people smugglers in the region.

Foreign Minister Stephen Smith has defended the decision as "methodical" and says the safety of minority groups is improving in both countries.

"As we speak we are witnessing in Sri Lanka, for the first time in two decades, a parliamentary election," he said.

"In our view, again reflected by the UNHCR's own review processes, it is not now automatically the case that just because you are an Hazara Afghan that you automatically fall within the provisions of the convention."

The Government will continue processing claims from those asylum seekers already on Christmas Island or who are en route to Christmas Island after being intercepted.

All intercepted asylum seekers will continue to be taken to the already crowded detention centre on the island, where the Government is hastily increasing capacity to cope with the influx of arrivals.

Senator Evans has reiterated the Government's intention to use the Darwin detention centre, which can hold more than 540 people, if the need arises.

The news came as the Government released details of the rescue of asylum seekers from a boat which was intercepted 73 nautical miles east south-east of Christmas Island.

The Government says some of the asylum seekers ended up in the water but were rescued by crew from HMAS Wollongong.

"Just after 2:00am (AEST) the engine failed on the vessel which began to flounder," a statement from Home Affairs Minister Brendan O'Connor said.

"The transfer of passengers to HMAS Wollongong commenced immediately. Approximately 16 passengers were transferred immediately, however some passengers abandoned the vessel.

"Passengers were rescued from the water by the crew of HMAS Wollongong.

"HMAS Wollongong is now proceeding to Christmas Island with the passengers for security, identity and health checks."

The Federal Government has been under pressure from the Coalition after a spike in boat arrivals last year and this year.

The Coalition blames softened policy for the rise but the Government has said it is due to international "push" factors.

The issue also came to a head last year during the Oceanic Viking affair, when a group of Tamils being held on the Customs ship refused to disembark unless they were taken to Australia.