Mr Fraser said the policy, which has been criticised by some as a return to the Howard era's Pacific Solution, was significantly different because it would deter asylum seekers from making dangerous journeys to Australia by boat.
But any offshore processing centre should be run properly with the involvement of the United Nations High Commissioner for Refugees, said Mr Fraser, who was the Liberal prime minister from 1975 to 1983.
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"If the prime minister can establish this policy and as a consequence remove the incentive to undertake a voyage in dangerous boats under the charge of the people smugglers, then that's, I believe, a positive result and quite different from a Pacific Solution," Mr Fraser told AAP on Wednesday.
He said Ms Gillard should consider talking to Canada and the United States, as she has done with New Zealand, to assist with resettling those asylum seekers found to be refugees.
"There needs to be a commitment that if people are genuine refugees they will be allowed to come to Australia, New Zealand, and try and get Canada (and) America also involved," Mr Fraser said.
"Then you have a regional approach involving regional countries, but also refugee recipient countries.
"There was none of that agreement in relation to the Pacific Solution," Mr Fraser said, referring to the former Howard government policy of processing asylum seekers offshore in Nauru and Papua New Guinea.
Mr Fraser also praised Ms Gillard for removing the extreme rhetoric that he said has characterised the asylum-seeker debate.
"I think the prime minister's statement ... takes the extreme rhetoric out of the debate.
"I would like to think that would be followed by other politicians and particularly by the Liberal party."
