The Australian government has welcomed Nauru's announcement that the immigration detention center will now be run as an "open centre".
Nauru's Justice Minister David Adeang has announced "eligible transferees" will be allowed to leave the camp at designated times since here February.
A statement from Immigration Minister Peter Dutton's office said the Australian government would support Nauru by funding a "contract service provider to deliver settlement services to refugees in Nauru".
The Nauru government has confirmed it will process all refugee claims within the next week.
The announcement from Nauru's Justice Minister David Adeang came as it was revealed asylum seekers would be given the freedom to come and go as they pleased from the detention centre.
There are 600 asylum seekers still awaiting processing on the island
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The Nauru government has confirmed the facility will become an open centre, in line with the recommendation of a recent Senate inquiry report into allegations of sexual and child abuse.
In a statement Mr Adeang said Nauru had been working towards this for some time and had been awaiting confirmation of Australian assistance to carry out the day centre plan.
"The start of detention-free processing is a landmark day for Nauru and it represents an even more compassionate program, which was always the intention of our government," he said.
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Mr Adeang flagged that more Australian police assistance would be forthcoming.
But Human Rights Law Centre spokesman Daniel Webb said the increased freedom of movement was no quick fix.
"Letting people go for a walk does not resolve the fundamental problems caused by indefinitely warehousing them on a tiny remote island," he said, adding that the centre has a case in the High Court on Wednesday challenging the lawfulness of the Australian government's role with the detention centre.
Independent MP Andrew Wilkie described the detention centre changes as a "worrying diversion".
"The fact is that offshore processing is fundamentally wrong and should be shut down completely, not just in the Republic of Nauru but also in Papua New Guinea," he said in a statement.
Refugee advocate Ian Rintoul said the announcement was "pretty much meaningless".
"Nauru operates as an island gulag," he told Sky News.
The Nauru government has increased the number of community officers from 135 to 320, including 30 refugees, to help with the transition.
Extra lifeguards will be appointed to patrol beaches to ensure the water safety of refugee families, some of whom may not have strong swimming skills.
A Pakistani refugee drowned last year while swimming at the beach, along with a Nauru citizen who attempted the rescue.
The Nauru government is also in talks with Australia about ongoing health care and overseas medical referrals for refugees.
Australia has defended its detention policy as necessary to stop deaths at sea. No one processed at the Nauru or Papua New Guinea camps is eligible to be settled in Australia, even if they are found to be genuine refugees.
