Prime Minister Julia Gillard appears ready to dump her plan to build a regional detention centre in East Timor and again send asylum seekers to a camp in Papua New Guinea.
Speculation is growing that the centre on PNG's northern Manus Island established under former Liberal Prime Minister John Howard's "Pacific solution" will be reopened to take asylum seekers from overcrowded facilities on Christmas Island and the mainland.
Gillard has refused to comment directly on the reports, saying discussions were continuing with neighbouring countries and the United Nations High Commissioner for Refugees.
"When I've got something to announce arising from those discussions then I'll announce it."
But the secretary of PNG's Foreign Ministry, Michael Maue, confirmed to the Australian that discussions about a processing centre were under way following a visit to Port Moresby this week by Australian Immigration Department secretary Andrew Metcalfe and Richard Marles, the Parliamentary Secretary for Pacific Island Affairs.
ABC radio has also been told by Manus residents that Australian officials - including a senior officer from the Australian High Commission, others from the Immigration Department and PNG's chief migration officer - flew to the island on Thursday to inspect the former detention centre.
The ABC reported that the officials told local leaders there would be a regional processing centre for asylum seekers on the island, subject to approval by PNG's national executive council.
The Australian further reported that the PNG Cabinet was yesterday to have discussed a formal request by Canberra to either reopen the former centre at Lombrum naval base on Manus, or to build a new facility.
The Manus Island camp and another on Nauru were built by the Howard Government to deny asylum seekers access to Australian courts and operated from 2001 to 2004.
The offshore centres were a key element in Howard's tough line against boats sailing from Indonesia, which also involved a new facility on Christmas Island - still in use and overcrowded - mainland outback camps, and the legal excising of numerous islands from Australian migration law.
During the term of the controversial "Pacific solution" the boatloads of asylum seekers ended and did not resume until Labor overturned its most draconian elements after winning power in 2007.
Since then the number of people risking the dangerous journey from Indonesia has again soared, overtaxing facilities and emerging as a serious political issue for Gillard's embattled minority Government.
Yesterday, as the patrol boat HMAS Launceston intercepted another boat carrying 63 people off Western Australia's northern coast, Gillard was facing further embarrassment as it appeared she was preparing to adopt part of a policy Labor had previously condemned as inhumane.
Gillard insists the Government will only pursue a "regional solution" in a country that is a signatory to the UN convention on refugees, as is PNG.
Nauru's failure to sign the convention was one reason why Gillard refused to consider Opposition calls to reopen the facility Howard built on the island.
But Opposition Leader Tony Abbott said Nauru as well as Manus would be needed in a package of measures that should also include the return of Howard's restricted temporary protection visas.
"[Howard's] was a much more comprehensive policy than that which the Government is now inching towards."
He said Shadow Immigration Minister Scott Morrison had looked at the Nauru detention centre there. It was in good condition and could be reopened within weeks.
Greens leader Bob Brown said the reopening of Manus Island would create huge hardship and punishment for innocent people fleeing persecution.
Gillard set to reopen PNG camp for refugees
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