A riot at the Christmas Island detention centre was sparked when police and security staff grabbed and handcuffed suspected protest leaders, a refugee support group says.
Australian Federal Police (AFP) officers used tear gas to quell the protest by about 300 asylum seekers early on Monday morning.
One detainee was taken to hospital with a suspected broken leg and fences and doors were damaged during the confrontation.
Immigration Minister Chris Bowen has promised an "arm's length" inquiry into the protest, including a review of the AFP's use of tear gas.
The AFP will carry out its own investigation and decide whether to lay any charges.
The federal opposition says the riot is evidence that Australia's detention system is "in crisis".
Mr Bowen told reporters in Sydney the protest showed a level of frustration among asylum seekers and he conceded the facilities were under pressure and the mood at the centre was "tense".
"Protest action, whether it's by escape or any other protest, is not achieving the outcome they desire," he said.
"The best way of resolving the situation for them is to co-operate with the processing of their refugee assessment claims."
Mr Bowen said that Serco, the firm that runs the centre, could face penalties if it was found to have breached its contractual obligations.
Monday's riot was preceded by two break-outs by detainees, the first by about 200 people.
All were back inside on Monday, with an Immigration Department spokesman saying the centre had returned to calm and head counts and a clean-up were under way.
Refugee Action Coalition spokesman Ian Rintoul told AAP that sources inside the centre told him the confrontation was sparked by a planned "snatch and grab" raid to round up suspected protest ringleaders.
Mr Rintoul said the raid appeared to be orchestrated by the AFP and Serco staff to "show who was in charge", but it had backfired.
Those apprehended were handcuffed and taken to the high-security Red compound, sparking an angry response from protesters who then broke into the compound to be confronted by police and Serco staff, Mr Rintoul said.
He said Tamil detainees who were not involved in the protest had told him they were terrified when they heard shooting.
"We also have information that the leg has been broken by a rubber bullet or by a pretty savage baton attack," Mr Rintoul said.
The use of tear gas and batons inside the detention centre was something not seen since the Howard era and was "absurdly heavy-handed and repressive", he said.
"All it has done is increased the levels of tension and anxiety inside the detention centre."
Federal Opposition Leader Tony Abbott said the latest unrest on Christmas Island showed that Australia had a "detention system in crisis" and it was getting worse.
"It's getting worse because this government can't stop the boats," Mr Abbott said.
He said the opposition was recommending the government put in place tougher policies that had worked under the Howard government.
"Those policies weren't always popular but they did stop the boats," Mr Abbott said.
"They did prevent the deaths, they did prevent the riots."
Mr Bowen said the number of detainees being held at Christmas Island had fallen to 2539 as at Monday, from 3052 in December.
- AAP
Protest stopped with tear gas
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