No asylum seeker who comes by boat will ever be resettled in Australia under Prime Minister Kevin Rudd's dramatic and ''hardline'' new refugee laws.

They will instead be sent to Papua New Guinea for processing and, if found to be refugees, will be resettled there.

In the strongest line a modern Labor prime minister has taken against asylum seekers, Mr Rudd said: ''As of today, asylum seekers who come here by boat without a visa will never be settled in Australia''.

Declining to say how much the initiative would cost, Mr Rudd said it ''will not be inexpensive''. But he said in time the measures would be ''budget neutral'', with record arrivals - numbering 15,610 this year - placing a heavy burden on the budget.

All asylum seekers arriving by boat after Mr Rudd and PNG Prime Minister Peter O'Neill signed the agreement at 4.30 pm on Friday are subject to the new rules. Asylum seekers already on Manus Island and Nauru, as well as those detained in Australia, are not subject to the new laws.

''I understand that this is a very hardline decision,'' Mr Rudd said.

''But our responsibility as a government is to ensure that we have a robust system of border security and orderly migration, on the one hand, as well as fulfilling our legal and compassionate obligations under the refugees convention on the other.''

Mr Rudd said the agreement purposely did not cap how many asylum seekers could be sent to PNG.

''What we're seeking to do through these arrangements at the moment is to send a message to people smugglers around the world that the business model is basically undermined,'' he said. ''It says if you jump on a boat you're going to end up in Australia. That doesn't apply any more.''

He said people smugglers were ''constantly changing the way they operate''.

''We need to be flexible enough to anticipate and match their actions to avoid the terrible consequences of this trade. No doubt there will be some people smugglers who now encourage asylum seekers to test our resolve. Be in no doubt. If people are paying thousands and thousands of dollars to a people smuggler they are buying a ticket to a country other than Australia.''

He said the agreement had been written ''mindful'' of the potential for legal challenges.

Under the regional resettlement arrangement signed with PNG, people will be sent to Manus Island and elsewhere in PNG for processing as soon as health and security checks are complete. PNG officials will assess their claims for refugee status. Mr Rudd said the government would consider progressively increasing its humanitarian intake.

The opposition's immigration spokesman, Scott Morrison, said people would continue to be sent to Australian detention centres ''while the lawyers circle'', because it could take years for PNG to be able to take the number of asylum seekers Australia had received in recent years. He said the costs would be open ended. ''There is currently not the capacity for people to be transferred to Papua New Guinea in the numbers that are arriving.''

Refugee advocates say they will be examining the legality of Mr Rudd's changes, despite Attorney-General Mark Dreyfus' assurances the changes abide by the refugee convention.

Jana Favero, a spokeswoman for the Asylum Seeker Resource Centre, said the new hardline rules went against the spirit of the convention because Australia was now ''outsourcing [its] obligations''. Asylum seekers in Australia already faced tougher conditions than under John Howard, she said.

Greens leader Christine Milne said it was ''absolutely immoral'' for a rich nation to ''dump thousands of vulnerable people into an impoverished country''.

with Daniel Hurst and Tom Allard

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