The first boatload of asylum seekers to be processed under the Government's hardline new deal with Papua New Guinea has been intercepted.

Prime Minister Kevin Rudd announced that asylum seekers arriving in Australia by boat will be processed in PNG and resettled there if they are found to be refugees.

Immigration Minister Tony Burke says two boats which arrived on Friday afternoon will not be processed under the new regime.

But he says a third boat carrying 81 passengers and two crew was intercepted in the early hours of Saturday morning and the new rules will apply to them.

The boat was intercepted near Christmas Island after the Australian Maritime Safety Authority (AMSA) received a distress call from a person in Australia last night.

Mr Burke says the people will be taken to Christmas Island for initial health checks and will be informed that they will be processed in PNG.

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

There will be no cap on the number of refugees to be settled in PNG Manus Island detention centre to be expanded to house 3,000, up from its original capacity of 600

He says single men will be sent first, while children and families may remain on Christmas Island until facilities on Manus Island are ready to house them.

"The people for whom I believe the facilities are ready to go now, without any doubt, are the single adult males. And as facilities are improved, then more groups will be able to go," he said.

Mr Burke added: "If they have a settlement outcome, everybody will end up in Papua New Guinea."

Under the deal if the asylum seekers are found to be refugees they will be settled in PNG. Those found not to be refugees will be sent back to their own nations or a third country.

Mr Burke says if any of the asylum seekers decide not to apply for asylum the Government will help them return to another country.

"If they have successful claims for asylum they will be taken to a place where they will not be subject to persecution, where they have proper accommodation, needs being looked after and where there are proper services in place," he said.

"Under no circumstances though will that place be Australia."

Backlash over advertising campaign

The Government launched an international advertising blitz on Saturday to spruik the deal.

The newspaper advertisements carry the slogan: "If you come here by boat without a visa, you won't be settled in Australia".

Two radio advertisements have also been produced, telling asylum seekers that "the people smugglers' guarantee is worthless" and warning them that they are "buying a ticket to another country".

Independent Senator Nick Xenophon believes the ads could be in breach of advertising guidelines. ( ABC News )

But independent Senator Nick Xenophon believes the ads could be in breach of advertising guidelines.

"I'll be complaining to the Auditor-General about this," he said.

"This is not what government advertising should be about. This ad is directed to people smugglers.

'"How many people smugglers subscribe to the Adelaide Advertiser or the Herald Sun, or the Sydney Morning Herald or The Australian?

"It is a clear blatant use of taxpayers' money in a party political way.

"Unless the Adelaide Advertiser is offering a home delivery service to the suburbs of Jakarta, then this ad is a blatant waste of taxpayers' money."

But Mr Burke says he makes no apology for spending money on making sure the message is heard.

"I have authorised expenditure within Australia of $2.1 million," he said.

"It is very likely I will approve more expenditure on that campaign, because it is critically important.

"There is an additional campaign which is specifically taking place itself internationally.

"This will have a particular emphasis, but will not be limited to, campaigns aimed at reaching people who form a large part of the current case load - Afghans, Pakistanis, Iraqis, Iranians, Sri Lankans and Vietnamese."

Labor Party backlash over deal

The policy has been welcomed by the Federal Opposition and condemned by the Greens, who say Mr Rudd has "leapfrogged Tony Abbott on cruelty".

There is also disquiet in the Labor Party over the new policy.

The president of the Victorian branch of the ALP and candidate for the seat of Melbourne, Cath Bowtell, says she does not think it is the best response and will talk to Labor caucus members about it.

"I think what makes me uncomfortable is that people see this as a policy that is not one delivered by people of good heart," she said.

"I don't think that's right. I think people of good heart are trying their best to have a humane response to the fact that we have thousands of people dying at sea."

There is also mounting criticism from a number of Tasmanian Labor MPs.

The state's Attorney-General Brian Wightman and Police Minister David O'Byrne have both taken to Twitter, saying Labor has got its policy wrong.

If Tony Abbott welcomes any Labor announcement then it's proof we haven't got it right. — Brian Wightman MP (@BrianWightmanMP) July 19, 2013

Always a test for communities when faced with a choice about how we treat those less fortunate,as a country we have failed that test — David O'Byrne MP (@DavidOByrneMP) July 20, 2013

Queensland Premier Campbell Newman, meanwhile, says the new policy means border protection needs to be strengthened along the state's border with PNG.

Mr Newman says the Torres Strait is a porous border between the two countries.

"I'm after an iron-clad assurance from the Prime Minister that he will strengthen border protection in the Torres Strait, that he will ensure that this just doesn't mean PNG becomes a jumping off point for a wave of immigration into this state," he said.

"What Kevin Rudd has done is take Australia's problem and make it Queensland's problem. The Torres Strait is a porous border right now.

"Porous in that many many people come across the strait from PNG into Queensland each year. It's only four kilometres from PNG onto the soil of Queensland."