Australia will send officials to Dili this week for talks on creating a processing centre for boatpeople in East Timor.
The arrival of asylum-seekers on the country's remote northwestern shores is a hot political issue in Australia, where an election is due in the coming months.
Foreign Minister Stephen Smith says the officials will start a detailed discussion about the proposal, which was floated last week by Prime Minister Julia Gillard.
She has come under fire for failing to discuss the idea with East Timor Prime Minister, Xanana Gusmao, before announcing the policy.
But Mr Smith says it was released in an "entirely appropriate manner", noting Ms Gillard had spoken to President Ramos Horta about it.
The opposition has blamed an upsurge in boat arrivals, mainly Afghans and Sri Lankans sailing from Indonesia, on a soft policy by the Labor government.
Some figures in East Timor have said they do not want their country to become a prison island.