The announcement by the Prime Minister John Howard comes as the government tries to repair ties with Indonesia strained over Australia's decision to give refuge to 42 Papuans.
The embassy has said Indonesia would welcome the move and Jakarta will respond very positively. A spokesman has said that Indonesia wants to be consulted when claims of genocide are made against the nation.
On Friday Mr Howard warned the people of the Papua province of Indonesia that Australia would not tolerate an influx of people fleeing the province.
Although pledging the review Mr Howard said that the government will continue to abide by its international obligations to asylum seekers.
House arrest claim by Greens
Meanwhile the Australian Greens said the federal government's use of the
Pacific Solution would effectively place two million West Papuans under house arrest.
According to The Australian newspaper, it said future Papuan asylum-seekers will now be subject to the Pacific Solution under which Australia has shipped hundreds of asylum-seekers to remote island detention centres.
Greens Leader Bob Brown favours independence for the lands he calls West Papua and said the Papuans would then be under arrest in a house ruled by Indonesia's armed forces.