Papua New Guinea has made an extraordinary surprise request for Australian taxpayers to pump $550 million cash into its coffers each year.

The move would see Australia's entire aid grant each year deposited into the PNG budget to fund schools, hospitals and infrastructure, despite persistent allegations of local corruption and mismanagement.

Australian Foreign Minister Julie Bishop said the PNG request came as a surprise. Credit:Tatan Syuflana

The request, which came without warning to foreign minister Julie Bishop, poses a major headache for the Turnbull government.

As host of the Manus Island detention centre, PNG is still crucial in Australia's strategy to stop asylum seeker boats, even as moves are underway to mothball the camp.