The Australian Immigration Minister Peter Dutton says detainees at its offshore detention facility on Manus Island in Papua New Guinea will not be brought back to Australia.
PNG's highest court ruled on Tuesday the detention of asylum seekers on Manus Island is illegal.
A five judge bench of the Supreme Court ordered the PNG and Australian governments to immediately take steps to end the detention of 850 asylum seekers in the centre.
But Mr Dutton said it was not Australia's responsibility and his government had contingency planning in place for all sorts of eventualities.
Hundreds of asylum seekers are held on Manus under Australia's offshore processing regime.
Then-leader of the opposition Belden Namah brought the challenge to the agreement between PNG and Australia, which saw the detention centre reopened in 2012.
Mr Namah argued a constitutional amendment allowing asylum seekers to be transferred to PNG was invalid.
A long-time human rights activist, Julian Burnside QC, said the decision meant the people detained on Manus must be released.
"And if they're released, the question is whether they're released into the PNG community or whether they are returned to Australia where they first arrived, where they were sent from and where they have a claim for asylum.
"Personally I would think they should be sent to Australia. I think on any view they're our responsibility and we ought to look after them."
Held against their will
It remains to be seen whether the PNG government will appeal the decision.
"But in a country where there is a constitutional guarantee of liberty, it would be a little bit surprising if any court said that people who have committed no offence, who have been taken there against their will by virtue of an agreement between Australia and PNG, can nevertheless be held captive in a detention centre." said Julian Burnside.
This month, PNG Immigration said 481 people on Manus had been found to be refugees and were eligible for settlement in PNG.
Another 465 asylum seekers were still having their claims assessed.
The authorities said 68 people had left the centre to prepare for life in PNG, and seven of them had already started life elsewhere in the country
Canberra rules out Australia for asylum seekers
The Australian government says detainees on Manus Island will not be brought to Australia despite the court ruling.
In a statement the Australian government says it was not a party to the legal proceedings and the decision does not alter Australia's border protection policies.
Canberra says those found to be refugees are able to resettle in PNG and those found not to be refugees should return to their country of origin.
This is despite PNG still lacking a clear resettlement programme for the asylum seekers, and warnings from local MPs about potential unrest over refugees being integrated into PNG grassroots communities.
However, Canberra says it will not allow a return to the chaos of the years of the Rudd-Gillard Labor Governments when regional processing was initiated to deal with the overwhelming illegal arrivals of more than 50,000 people.
Australia's government has however been urged to use this opportunity to change tack in its approach to asylum seekers.
Two people held on Manus had died, Julian Burnside explained, as a result of their detention on Manus.
One of them was murdered during a riot at one of the Manus compounds by at least one employee of the Australian contractor running the centre.
The other man died as a result of a medical condition which was not treated properly but left to fester.
Meanwhile, the Australian Greens called on Prime Minister Malcolm Turnbull to do the right thing by the Manus detainees.
"The game is up. The government has got to shut the Manus Island detention camp and bring these people here," the Greens' immigration spokesperson, Senator Sarah Hanson-Young said.
"Malcolm Turnbull has to act. He needs to allow the people there to be brought to Australia so that they can have their claims assessed and, if they are in need of protection, be integrated into the community."