Prime Minister Kevin Rudd, facing an imminent election, enlisted the help of the Pacific Island nation of Nauru in his hardline policy of denying asylum seekers arriving by boat the right to settle in Australia.
Rudd was reinstated in his job just over a month ago and has improved his Labor Party's previously dismal standing in opinion polls ahead of an election now due within weeks. His get-tough policy on asylum seekers is seen as a vote winner in poorer districts where immigrant numbers are high.
Rudd and the President of Nauru, Baron Waqa, signed a memorandum of understanding providing for asylum seekers arriving by boat to be sent to Nauru where they can opt for resettlement after their claims for refugee status are processed.
Like that deal, Saturday's agreement denies genuine refugees arriving by boat the option of being resettled in Australia. Australia, in turn, will provide Nauru with A$29.9 million ($26.6 million) in aid.
"The expansion of our regional arrangement sends a clear message that coming to Australia by boat is not the way to gain Australian residency," Rudd told reporters in Brisbane in the eastern state of Queensland.
More than 15,000 asylum seekers have arrived by boat in Australian territory this year, igniting a heated debate on refugee policy.
The conservative opposition, until recent weeks runaway leaders in opinion surveys, accuses the Labor government of being soft on border protection. The opposition remains the favourite to win the contest.
Nauru, with a population of 9,000 and a land area of 21 sq km (9 sq miles), has limited resources. Phosphate mining mainly by a British, Australian and New Zealand consortium over the past 90 years has turned much of its territory into a wasteland.
Asylum seekers detained in Nauru under an existing arrangement last month burned down the facilities housing them. Immigration Minister Tony Burke said the priority was to provide Nauru with funding to upgrade its prison, where some 150 asylum seekers are being housed as they face riot charges.
Though Papua New Guinea is engaging in a giant gas export project, more than 80 percent of its 6.5 million residents lead a subsistence life in villages. Analysts say there could be a backlash if funds are channelled towards new arrivals.
Nauru has exhausted much of its phosphate reserves and welcomed the recent reopening of detention facilities as a source of revenue.
Rudd acknowledged the size of the island nation and said its government would decide how many asylum seekers it can resettle.
Tough immigration policies are seen as a key element in winning seats in western Sydney, where anger at the boat arrivals is a major issue.
In response to heightened speculation that Rudd will name a date for the election within days, he said he had made "no determination whatsoever" on an election date.