Australia has officially signed its long-awaited asylum seeker deal with Malaysia, a move Prime Minister Julia Gillard says will "smash the business model of people smugglers".

Malaysia will have the right to veto any asylum seekers Australia wishes to relocate there under the terms of the refugee agreement signed in Kuala Lumpur this afternoon.

The swap deal, first announced by Ms Gillard and Immigration Minister Chris Bowen nearly three months ago, means Australia will send 800 asylum seekers to Malaysia and accept 4,000 verified refugees in return.

Key points of the agreement:

Those sent to Malaysia will be given rights to work, health care and education, unlike the 90,000 refugees already there

Those sent to Malaysia will be given rights to work, health care and education, unlike the 90,000 refugees already there Asylum seekers already on Christmas Island will be processed in Australia, but any arrivals from midnight tonight will come under the new arrangement

Asylum seekers already on Christmas Island will be processed in Australia, but any arrivals from midnight tonight will come under the new arrangement Once the scheme is fully up and running, they will be transferred to Malaysia within 72 hours

Once the scheme is fully up and running, they will be transferred to Malaysia within 72 hours Transferred asylum seekers will receive no preferential treatment in the processing of their claims

Ms Gillard says it is designed to send a message that asylum seekers should not risk their lives in the hope of having their claims processed in Australia.

"This is a ground-breaking agreement which is designed to smash the business model of people smugglers," she said.

"My message to anyone who is considering paying money to a people smuggler and risking their life at sea and perhaps the lives of their family members as well, is do not do that in the false hope that you will be able to have your claim processed in Australia."

Australia will pay for all costs - around $300 million over four years - including transport, welfare, health and education.

The Prime Minister also confirmed the 4,000 refugees coming to Australia would be taken from those in Malaysia before the agreement and would not include any of the 800 asylum seekers sent from Australia.

"As part of this agreement, Australia will take 4,000 genuine refugees from Malaysia... they will be people who have been registered in Malaysia by today," she said.

However the 500 asylum seekers on Christmas Island who arrived after the Government announced the swap deal will be processed in Australia, not offshore as pledged.

In order to discourage asylum seekers from making the dangerous trip, the Government has repeatedly said those asylum seekers would be taken to a third country such as Papua New Guinea and not processed in Australia.

The policy appears to have worked to an extent, with the number of boats decreasing from the same period last year and asylum seeker numbers down from 1,700 to 500.

But Ms Gillard says the decision to process on the mainland was taken in light of the health concerns PNG prime minister Sir Michael Somare is facing.

Concerns

She says the agreement addresses concerns held by Australian officials that the 90,000 asylum seekers already in Malaysia do not have access to health and education services.

Ms Gillard says asylum seekers will be allowed to work and integrated into the community.

"Those sent to Malaysia will be treated with dignity and respect in accordance with human rights," she said.

"They will not be subject to any of the penalties imposed on illegal entrants - that means they will not be arrested and will not be caned.

"To ensure the welfare of the asylum seekers transferred, there will be an overseeing committee that will include members of the UNHCR."

Refugee activists have warned asylum seekers faced caning and other rights abuses in Malaysia should they be in breach of local laws.

It has also been reported that Malaysian police will have the authority to force asylum seekers off the aircraft that carry them to Kuala Lumpur.

Management and funding of the deal will be administered by a joint Australia-Malaysia committee and an advisory group from the UNHCR and the International Organisation for Migration will oversee the program.

The UNHCR in a statement "noted" the agreement, saying its preference had always been an arrangement which would enable all asylum seekers arriving by boat into Australian territory to be processed in Australia.

But it said the agreement did contain important safeguards like the right of asylum, the principle of family unity and best interests of the child and access to health care and work.

The deal was signed by Mr Bowen and Malaysian home minister Datuk Seri Hishamuddin Hussein.