Manus Island looks set to be reopened as an asylum seeker detention centre after Papua New Guinea gave in-principle support for the move.
The development comes after the High Court of Australia on Monday extended an injunction preventing the transfer of the first asylum seekers from Australia in a swap deal with Malaysia.
PNG Prime Minister Peter O'Neill and his Australian counterpart Julia Gillard spoke on the phone last Wednesday and discussed reopening the facility, Mr O'Neill's spokesman Ben Macah said.
"They reached an agreement," Mr Macah told AAP on Wednesday. "An understanding has been reached that the Manus (facility) will be made available to Australia.
"They will commence the dialogue with our people there and take it from there." However, Mr Macah said there was no time frame yet for opening the facility.
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"No, it's Australia's call," he said. "At the moment, we're going through the motions." It is understood the Australian government would run the re-opened Manus facility.
In Kuala Lumpur, the Malaysian government described the court action preventing the transfer of asylum seekers from Australia as just a "hiccup", rejecting accusations that there will not be adequate protection for them.
Malaysian Home Minister Hishammuddin Hussein says he wants to see the swap deal up and running soon.
Under the controversial agreement, 800 asylum seekers who arrive in Australia by boat will be deported to Malaysia in return for Australia accepting 4000 people who already have refugee status.
The High Court injunction will remain in place at least until its full bench issues a ruling on the policy's lawfulness.
Mr Hishammuddin hit back at refugee advocates challenging the agreement in court, saying all parties concerned would be provided with adequate protection.
"Notwithstanding the hiccup, the agreement remains the best way to tackle the menace of people traffickers in a way that protects the interests of Australia, Malaysia and above all, the immigrants involved," Mr Hishammuddin told the Star newspaper.
"We hope to see it up and running as soon as possible.
"Malaysia and Australia remain steadfastly committed to making this program a success."
The first group of 16 male asylum seekers was set to be flown from Christmas Island to Kuala Lumpur on Monday before the court injunction, initially ordered on Sunday, was extended for at least two weeks in a hearing in Canberra on Monday. It is likely to remain in place until the High Court begins hearing arguments on August 22, although Immigration Minister Chris Bowen hopes the case could be heard sooner.
