uine refugees, they will be sent to a third country and can never hope to settle here.

Immigration Minister Amanda Vanstone said the new system, which applies from today, was an extension of the Government's much-denounced Pacific solution introduced in 2001.

Any illegal entrant to Australia will be shipped to Nauru, Manus Island in Papua New Guinea or Christmas Island, where they will stay until their visa applications have been processed.

They will be confined to Immigration Department centres on the islands until a home can be found for them elsewhere overseas.

But the policy shift does not apply to people who arrive illegally in Australia by air, of whom there are only a handful each year.

"This particular change doesn't affect those who arrive by air. It is targeted quite specifically at unauthorised boat arrivals," Senator Vanstone said.

It also does not apply to the vast majority of people illegally in Australia now who arrived on valid visas, but overstayed their welcome.

"If people come in lawfully to Australia they will, of course, be treated in the way they are now treated and some people do manage to come unlawfully by plane," Senator Vanstone said.

She would not say how much the new regime will cost taxpayers, which Labor has warned will be expensive.

Today's announcement would have caught out the 42 Papuan asylum seekers granted temporary protection by Australia last month after arriving in a rickety boat, causing a massive rift with Indonesia.

Those Papuans have been temporarily resettled in Melbourne.

Senator Vanstone said the changes would speed up claims procedures, but would not say whether Australia, or the United Nations High Commissioner for Refugees (UNHCR), would be in charge of the processing.

The Government was widely criticised in 2001 when it introduced the so-called Pacific solution.

The policy allowed Australia to send asylum seekers to offshore detention facilities outside its migration zone, like Nauru.

It was precipitated by the rescue of 438 asylum seekers from a sinking Indonesian fishing boat in August, 2001 by the Norwegian vessel, Tampa.

Senator Vanstone said she did not expect the new policy would require any additional offshore centres.

But she deferred questions about the reasons behind the extension of the Pacific solution, which was ticked off by Cabinet's national security committee only yesterday, to Foreign Minister Alexander Downer.

Since the Papuans were granted asylum, Indonesia has temporarily recalled its ambassador, its companies are threatening to boycott Australian goods, and a host of prominent Australians have been named on a blacklist of Papuan separatist supporters.

Prime Minister John Howard has denied the policy shift is a bid to appease Australia's northern neighbour.

"It's not done as a concession to Indonesia," Mr Howard said.

"Having said that, the bilateral relationship with Indonesia and Australia ... is very important."

Indonesia has been accused of widespread human rights abuses since it assumed control of Papua after a United Nations referendum in 1969.

Papuans claim only a tiny proportion of the population was allowed to vote in the referendum.

Laws enabling today's changes will be introduced to Parliament as soon as possible.