Immigration Minister Peter Dutton says an asylum seeker baby temporarily spared from being returned to Nauru will ultimately end up there.
The child known as Baby Asha has reportedly been released into community detention, after being treated for burns in a Queensland hospital.
Doctors at Brisbane's Lady Cilento Children's Hospital refused to release the one-year-old until an acceptable home was identified.
The stand-off prompted a week of rallies outside the hospital by asylum seeker advocates.
The Australian Medical Association has issued the government with a set of demands, calling for the immediate removal of all children from detention.
Baby Asha has been receiving treatment at Brisbane's Lady Cilento Children's Hospital after suffering burns from boiling water while in detention on Nauru.
Doctors at the hospital had refused to release the one-year-old until an acceptable home had been identified.
Her plight sparked a vigil and protests that have run outside the hospital since last week.
Immigration Minister Peter Dutton says the doctors have now agreed to release the child.
Mr Dutton says the Government has proposed to move the child and her family into community detention in Australia, from where she will continue to be processed.
"So we are proposing that Baby Asha will come from Lady Cilento and will go into community detention as have 83 others who are living in the community, who are in Australia for medical assistance, and their family members who are here to support those for medical assistance. It will be a continuation of that policy."
Mr Dutton says the child and her parents will be returned to Nauru once their medical and legal matters are finalised.
"The Government's position is perfectly clear. That is, at some point, if people don't have a protection claim, they will be returned to the country of origin or back to Nauru. We are not going to reneg on that position. We have a very important policy to continue. That's stopping the boats, making sure we deal with cases compassionately, but, if people are suggesting to you that somehow there has been a change in the policy or that we're going to allow special treatment in Baby Asha's case, then that is not the case."
Australian Medical Association president Brian Owler has called for immediately releasing all children in detention and a moratorium on sending any child back to detention.
Professor Owler says keeping children in detention has significant health impacts.
"We know from the Human Rights Commission that there is no doubt that having children in detention is harmful. It causes physical, psychological, emotional and developmental harm. The only way to countenance that is to have children out of detention."
The AMA has also called for establishing a transparent, national statutory body of independent clinical experts.
They would have the power to investigate and report to the parliament on the health and welfare of asylum seekers and refugees.
Speaking at a rally in Sydney, Professor Owler has warned the forced removal of Baby Asha would represent a point of no return in the asylum-seeker debate.
He says doctors at the Queensland hospital who earlier refused to release the baby acted appropriately.
"We unequivocally support the doctors and nurses working in Lady Cilento. It is an absolute ethical obligation, not to mention moral obligation, of those doctors and nurses to not release Baby Asha into a situation where they believe there is likely to be harm."
Protesters promised to maintain a 24-hour vigil outside the Brisbane hospital where the child is being treated until they received further information about the family's situation.0
The Asylum Seeker Resource Centre's Kon Karapanagiotidis has thanked the crowd for their support.
"Thank you again so much for sending a clear message that we are not going to stand by and allow children to be abused, we are not going to stand by and allow women and men or children to be sent to harm. We are Australians. We're not going to stand for this. We're not going to put up with this ever again."
