Prime Minister Tony Abbott's policy to turn back asylum seekers has failed a significant test, with 63 boat people arriving on Christmas Island after the government blinked in a mid-ocean standoff with Indonesia.

The backdown will be seen as a loss of face for the Coalition, which vowed before the election that Australian authorities would not act as a taxi service for refugees. It may also encourage other people-smuggling syndicates to try their hand.

Although Indonesia had agreed to Australia's request to take back asylum seekers on two recent occasions, critics of the government's turn-back policy had predicted Jakarta would eventually refuse to accept boats turned back by the Australian navy. That day came on Friday, when Indonesian Foreign Minister Marty Natalegawa outlined a harder-line doctrine and refused to take the asylum seekers unless there was a threat to life.

As Labor said the turn-back policy was ''in tatters'' and accused the Abbott government of inept diplomacy, Immigration Minister Scott Morrison tried to play down the stand-off in a statement issued on Saturday. He said that overnight on Friday the Indonesians has advised Australian officials that they were ''reviewing'' the request to take the boat back.