Papua New Guineans are warning the Federal Government that its new asylum seeker plan will create hostility and add to problems in the developing country.

Local politicians have questioned how the plan will be financed, and say resettled refugees may face hostility from locals.

Prime Minister Kevin Rudd says the plan to send asylum seekers to PNG fulfils Australia's "legal and compassionate obligations", but the Department of Foreign Affairs and Trade's own website details a litany of social problems in the country.

It says anyone travelling to PNG should exercise a high degree of caution, warning of high levels of serious crime including violent assault and rape, as well of high rates of HIV/AIDS, endemic levels of cholera, and poor health facilities.

PNG's former opposition leader Dame Carol Kidu says the country already has too many displaced people.

"We have not heard the technical details being developed I'm sure by the bureaucrats of exactly how this going to operate," she said.

"But you know, we're a developing country. We don't have the developed systems like Australia.

"We are facing many problems ourselves, and to me I think it could be an increased problem.

"It's called the PNG solution but I think it's more of an Australia solution."

The governor of Oro province, Gary Zuffa, has told 702 ABC Sydney the decision to settle refugees in Papua New Guinea could be very divisive.

"Who's going to finance that re-settlement? I'm assuming that Australia is," he said.

"If Australia is going to finance that re-settlement, then that's going to create a bit of hostility from the local population because these people will be given funds to start a new business, start a new life.

"You know this is going to raise some questions in these economies as well."

Independent MP Andrew Wilkie has also hit out at the Government's policy, warning that PNG cannot fully look after its own people.

"I think this is more about the politics of an election than about the humanitarian crisis we have on our borders," he said.

Papua New Guinea's prime minister Peter O'Neil has defended his deal, saying it is nothing new and will benefit his country.

In his first public comments since the deal, he said the recent agreement was an extension of programs begun under the Howard Government.

Mr O'Neil said refugees could be resettled "any day" but there was no detail on where they might live.

"We'll get there when we start processing them," he said.

He assured Papua New Guineans the agreement was good for PNG and outlined the highways, universities and hospitals that will be built with Australian money.

Burke flags possibility of indefinite detention in PNG

This morning Immigration Minister Tony Burke confirmed asylum seekers sent to PNG could be held in detention indefinitely if they are not found to be refugees.

He says they will have three options.

"One, they remain in detention. Two, they return to their home country. Three, they get settled in another country where they have a right of residence. They don't have a right of residence in Australia, but any of those three options are open," he told AM.

Asked if that meant people could face "indefinite" detention in PNG, he replied: "Potentially. But I would say it would be an odd choice if you don't have a well-founded fear of persecution".

"If you're not someone who is being persecuted ... and you then choose [to] remain in detention in Papua New Guinea, rather than return to [your] country, that would be a very strange choice for someone to make.

"It's really pushing the grounds of credibility to think people would be making that decision."

Mr Burke said work to expand the capacity of the Manus Island detention centre had already begun, and added that other detention facilities could be opened.

"We're looking at a number of sites; they're not yet confirmed," he said.

"But at the moment, we're in a situation where we'll make sure the capacity that is required is there."

Abbott renews attack on deal

The Opposition continued its attack on the Federal Government's two-page deal with Papua New Guinea this morning.

"The trouble is this particular deal is unravelling before our very eyes," Opposition Leader Tony Abbott told reporters in Melbourne.

"It is not legally binding and it doesn't say what Mr Rudd says it said.

"It doesn't say that everyone who comes to Australia illegally by boat will go to PNG. It doesn't say that no-one who goes to PNG will ever come to Australia. Mr Rudd is being misleading to the point of dishonesty."

But former Opposition leader Malcolm Turnbull has voiced cautious support for the plan, describing it as "cruel" but saying it has the potential to reduce the number of asylum seekers arriving by boat.

"It is a very cruel policy," Mr Turnbull said in an interview on SBS last night.

"What Kevin Rudd is proposing is extremely cruel, but all the policies to deal with the people smuggling problem are to some extent cruel.

"This policy is the consequence of his unpicking of a much more measured approach back in John Howard's day."

Mr Turnbull also raised questions about his own party's policy of turning back boats, describing it as difficult and potentially dangerous.

"There are many risks with turning back boats," he said.

"I think what you want to do from an operational point of view is keep all your options open.

"Why would you deprive yourself of any one option? Because what if the PNG solution, if that's the right term, turns out to be no solution?"