Australia and Malaysia have agreed to trade asylum seekers.
It comes after it was revealed Australia wants to establish a refugee processing centre in Papua New Guinea.
Prime Minister Julia Gillard says a bilateral agreement would see 800 people who tried to get to Australia by boat taken immediately to Malaysia instead.
In return, Australia will take 4000 genuine refugees from Malaysia over four years.
Ms Gillard describes the impending deal as a big blow to people smugglers.
"The truth is, if you spend your money, you get on a boat, you risk your life - you don't get to stay. You go to Malaysia and you go to the back of the queue," she said.
"We will take people from the front of the queue, people who are already in Malaysia and already processed as refugees."
However Australia's opposition leader, Tony Abbott, says the deal is just a "people-go-round".
Mr Abbott says the plan is a panicked response which risks turning Malaysia into a back-door entrance to Australia.
He says Ms Gillard should swallow her pride and go back to the hardline policies of the previous John Howard government.
NZ not part of PNG plan
Earlier, the New Zealand government said that it was not going to be involved in Australia's plans for a refugee processing centre in Papua New Guinea.
The Australian government is negotiating with PNG to reopen a detention centre on Manus Island, in the north of the country, which was closed in 2007.
Australia is pursuing the option after a proposal for a regional processing centre in East Timor was opposed by Timorese leaders last year.
A spokesperson for New Zealand's Immigration Minister Jonathan Coleman says New Zealand has not been asked to be involved in the Manus Island centre and it does not expect to be.
Boat intercepted
A boat of 85 suspected asylum seekers has been intercepted on its way to Australia.
The HMAS Broome, operating under the control of Border Protection Command, intercepted the vessel northeast of Christmas Island on Saturday afternoon.
The 85 people will be transferred to Christmas Island where they will undergo security, identity and health checks and have their reasons for travel established.
