As few as four or five people could be sent from Nauru to Cambodia under a deal signed by Immigration Minister Scott Morrison in Phnom Penh today.

In a joint statement, the Australian and Cambodian governments announced a bilateral memorandum of understanding that provides "settlement and integration support" in Cambodia for refugees.

The agreement will offer settlement of refugees on a voluntary basis, with the number of refugees accepted to be determined by Cambodia.

"In order to ensure an effective and positive implementation of the resettlement program, Cambodia and Australia have agreed to undertake an initial trial arrangement with a small group of refugees which will be followed by further resettlement in accordance with Cambodia's capacity," the statement said.

Cambodia's interior minister earlier said the government only wanted to take four or five refugees to begin with.

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In the statement, Mr Morrison welcomed the outcome of the deal, saying "those found to be in genuine need of protection will now have the opportunity and support to re-establish their lives free from persecution".

Scott Morrison and Cambodian interior minister Sar Kheng toast the signing of the resettlement deal. ( Getty Images: Omar Havana )

"As a party to the Refugees Convention, Cambodia, while making countless efforts to develop the country after the civil war, is demonstrating its ability and willingness to contribute positively to this humanitarian issue," he said.

Australia will pay Cambodia $40 million in additional aid and also "bear the direct costs of the arrangement, including initial support to refugees, and relevant capacity building for Cambodia".

It is understood the new arrangement could be in operation as early as the end of this year.

Foreign Affairs Minister Julie Bishop said the additional aid will be directed toward enhancing the competitiveness of Cambodian rice exports and the country's capacity to clear landmines.

Cambodians say country unable to look after its own

Riot police kept watch outside the Australian embassy in Phnom Penh as Cambodians protested against the agreement.

Around 100 protesters gathered outside the embassy to protest against the deal, saying the poverty-stricken country was unable to look after its own people and should not be taking in Australia's refugees.

Refugee advocates said they feared locals would be upset if refugees were given money and were perceived to be better off than others in the community.

Cambodia: Fact File Cambodia has a population of around 15 million

Cambodia has a population of around 15 million More than 96 per cent of them speak Khmer

More than 96 per cent of them speak Khmer It is a democracy under a constitutional monarchy. King Norodom Sihamoni currently reigns, while Hun Sen is prime minister

It is a democracy under a constitutional monarchy. King Norodom Sihamoni currently reigns, while Hun Sen is prime minister Suffered civil war under the Khmer Rouge, who sent 1.7 million Cambodians to their deaths in the 'Killing Fields'

Suffered civil war under the Khmer Rouge, who sent 1.7 million Cambodians to their deaths in the 'Killing Fields' 20 per cent of the population lives below the poverty line

20 per cent of the population lives below the poverty line The country remains one of the poorest in Asia

The country remains one of the poorest in Asia 37 per cent of children under the age of 5 suffer from chronic malnutrition

37 per cent of children under the age of 5 suffer from chronic malnutrition More than half of the population is less than 25 years old

More than half of the population is less than 25 years old More than half of the government's money comes from international aid

There are also fears that the Australian funding will end up in the pockets of corrupt officials.

Mr Morrison earlier said there would be no cap placed on the number of refugees Cambodia would accept, but said it would only take those who voluntarily chose to go there.

But the Greens disputed the Federal Government's assertion that the resettling of refugees would be truly voluntary.

"It's like the school bully asking whether you want a punch in the face or a kick in the guts," said the party's immigration spokeswoman Sarah Hanson-Young.

Human rights and aid groups working on the ground in Cambodia called the deal "shameful", and said the country had a terrible record of protecting refugees.

"It is shameful but it is also illegal," said Virak Ou, president of Cambodia's Centre for Human Rights.

Sorry, this video has expired Cambodians protest against refugee resettlement deal

"The Australian Government has an obligation to protect refugees and sending them Cambodia's way is not how a responsible country protects refugees.

"Cambodia is in no position to take refugees. We are a poor country, the health system is sub-par at most. I don't know how the refugees will send their kids to school.

"The Cambodian school system is rife with corruption ... the access to education here is quite bad. So I don't know what the Australian Government is thinking nor what they expect from this deal."

Refugee advocate David Manne told ABC NewsRadio the deal was largely shrouded in secrecy and was a matter of profound concern.

He labelled the plan a "dangerous refugee diversion deal with Cambodia" saying "Australia risks violating people's rights and endangering lives".

Mr Morrison said the scheme would help eventually clear the Nauru and Manus Island detention centres.