Prime Minister Kevin Rudd says asylum seekers who arrive by boat will have no chance of being settled in Australia as refugees.

Mr Rudd has confirmed a deal that will see asylum seekers sent to Papua New Guinea for assessment, and if they are found to be refugees, they will be resettled there.

PNG's prime minister Peter O'Neill joined Mr Rudd in formally unveiling the plan in Brisbane on Friday.

Mr Rudd says those found not to be refugees will be sent back to their own nations or a third country.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Listen Duration: 5 minutes 30 seconds 5 m Rudd to send all boat arrivals to PNG ( Naomi Woodley ) Download 2.5 MB

He says the deal with PNG is aimed at stopping "the scourge of people smuggling".

"I understand this is a very hard-line decision. I understand the different groups in Australia and around the world will see this decision in different ways," he said.

"But our responsibility as a government is to ensure we have a robust system of border security and orderly migration on the one hand, as well as fulfilling our legal and compassionate obligations under the Refugees' Convention on the other."

In addition to his announcement, Mr Rudd posted an address to the nation on his YouTube channel explaining the new policy.

Key points: Asylum seekers who arrive by boat will never be settled in Australia

Asylum seekers who arrive by boat will never be settled in Australia They will be sent to Manus Island or elsewhere in PNG for assessment

They will be sent to Manus Island or elsewhere in PNG for assessment Genuine refugees will be resettled in PNG

Genuine refugees will be resettled in PNG The agreement will be in place for at least the next 12 months

The agreement will be in place for at least the next 12 months There will be no cap on the number of refugees to be settled in PNG

The regional settlement arrangement will be effective for 12 months and there will be no cap on the number of people who can be transferred there.

Mr O'Neill says he strongly believes genuine refugees can be resettled in his nation.

"Specific communities like Papua New Guinea and the other island states continue to have challenges of maintaining their borders, and as a result of that we continue to have illegal immigrants into those countries," he said.

"Today's regional resettlement program is one that we believe that it's going to resolve many of those issues that we have brought forward to the Australian Government.

"I believe that the processing centre and the resettlement arrangements that we are forging will enable us to have an orderly processing of citizens, of people who are seeking genuine citizenship of other countries in the region.

"That is why we agreed to a resettlement program where we believe strongly that genuine refugees can be... resettled in our country and within the region in the years to come."

Mr Rudd says the new arrangement delivers a message loud and clear to people smugglers that "their business model is now basically undermined".

Country profile: Papua New Guinea Population : 7.1 million

: 7.1 million Area : 462,840 square kilometres

: 462,840 square kilometres GDP : US$15.6 billion

: US$15.6 billion Life expectancy : 63

: 63 Religions : Protestant (69.4 per cent), Catholic (27 per cent)

: Protestant (69.4 per cent), Catholic (27 per cent) Access to primary school education : 60 per cent

: 60 per cent Literacy : 57.3 per cent

: 57.3 per cent Agricultural exports : coffee, cocoa, copra, palm kernels, tea

: coffee, cocoa, copra, palm kernels, tea Commodity exports: oil, gold, copper ore, logs, palm oil Source: The World Bank, United Nations, CIA

The package includes a significant expansion of the Manus Island detention centre to house 3,000 people up from the original capacity of 600.

Currently, about 145 people are housed on the island.

A recent United Nations report was highly critical of conditions for asylum seekers on Manus Island, but the PNG government says construction will start on a new permanent centre shortly and it will be an improvement.

Mr Rudd says the implementation of the plan "will not be inexpensive and that acting on such a sustained challenge to border security does cost".

He says at present, because asylum seeker numbers are going up, it is a "huge burden to budget" but the new regional arrangement has "the objective of reducing the numbers overtime and therefore with less call on the budget".

Mr Rudd has been under growing pressure to deal with the dramatic increase in asylum seekers attempting to enter Australia by boat.

He says the new regional settlement agreement with Papua New Guinea is "part of a multi-layered approach to dealing with the scourge of people smuggling".

"Australia will continue its cooperative arrangements with the republic of Nauru and looks forward to furthering those arrangements," he said

Mr Rudd says he has spoken with the UN Secretary-General about Australia convening an international conference of relevant transit countries and destination countries.

He says the conference will look at the adequacy of processing systems and arrangements to deal with the burden of resettling refugees.

'This is a day of shame,' says Milne

Greens leader Christine Milne says Mr Rudd has "leapfrogged Tony Abbott on cruelty".

"Our obligations are to take seriously people's application for asylum in our country," she said.

"This is really an appalling performance from our for the nation and it really does say to the rest of the world that Australia is a very rich country which is prepared to pass the buck to a very poor country because a Prime Minister doesn't have the courage or the moral authority to do the right thing by refugees.

The deal includes a significant expansion of the Manus Island detention centre to house 3,000 people, up from the original capacity of 600. ( Supplied: Immigration Department )

"This is a day of shame."

Opposition Leader Tony Abbott says the new policy will never work with Mr Rudd in charge.

"I welcome it, but it won't work under Mr Rudd. I do welcome the generous response of PNG to Australia's difficulties here," he said.

"Let's face it, this is Labor's fifth go at getting it right and while this certainly is a very promising development in offshore processing, it is about processing boat people, it's not about stopping the boats and that in the end is what we have to have.

"I think the question that the Australian people have to ask is, who do you trust on this subject? Who do you trust to stop the boats? Do you trust the political party which started them up again?

"Or you trust the party that is the original and the best when it comes to actually stopping the boats?"

Human rights advocate David Manne says he is surprised by Mr Rudd's hardline stance.

"I am surprised on a number of fronts, first and foremost because Australia, having signed up to the Refugees' Convention in 1954 committed to protecting people who come to its shores, not exposing them to further risks elsewhere," he said.

Sorry, this video has expired PNG arrangement won't work under Rudd: Abbott

"I'm also particularly concerned because in the context of the global challenges, the fact remains that Australia hosts only 0.3 per cent of refugees worldwide and yet, what we see here is a policy designed not only to deter asylum seekers from coming and seeking refuge in Australia, but one that also proposes to shift our responsibilities on to others, to not shoulder the responsibility of protecting refugees but to shift it and to deflect it on to others.

"In this case, a country that is far less well equipped to respond and accommodate to the needs of refugees."

Former prime minister Malcolm Fraser has told the ABC the policy seeks to punish vulnerable asylum seekers.

"It is a policy clearly that penalises the most vulnerable of all the refugees because people don't really flee by boat from choice, they flee because of some terror in their country of origin," he said.

"To say that Australia will not assist such people under any circumstances is a very substantial statement - it's a change of Australia's values.

"And I believe an abdication of Australia's responsibilities and... an abdication of our basic humanity."

Tasmanian human rights lawyer Greg Barns is highly critical of the policy and says it may violate Australia's international obligations under the United Nations refugee convention.

"Effectively you've got a form of discrimination," he said.

"50,000 of them who come in every year on planes will be treated in a certain way, those who come by boat won't be."

Indonesia to toughen laws on visas for Iranians

Figures from the Department of Immigration show 15,610 people on 220 boats have arrived in Australian waters so far this year.

Iranians make up a third of the total making the journey; many others are Afghan or Sri Lankan.

Indonesia has also agreed to a request from Mr Rudd to make it harder for people from Iran to enter the country in order to travel to Australia by boat.

Indonesian justice minister Amir Syamsuddin has signed a letter - in effect a ministerial decree - that will stop Iranians being able to obtain a visa on arrival when they fly to Indonesia.

The move could slow the flow of people on their way to seeking asylum in Australia.

ABC's AM program understands officials from the Department of Immigration have been in Tehran negotiating for the Government there to take back asylum seekers.

Currently Iran does not accept involuntary returns.

Mr Rudd raised concerns about the arrangement for visas on arrival in Indonesia during talks with president Susilo Bambang Yudhoyono.

The Government has said that many asylum seekers arriving in Australia from Iran are economic migrants, not genuine refugees.

It is not yet known when the restriction on Iranians will take effect.