Refugee advocates have called the decision cruel and absurd.
Earlier, the federal opposition scoffed at reports the government has earmarked a new site on Manus Island in Papua New Guinea for a tent city for up to 10,000 asylum seekers.
Immigration Minister Tony Burke has flagged a major expansion of detention places on PNG, as the government implements its new hardline policy.
"The new sites we are looking at are proof that there's no cap on capacity," he told News Corp Australia.
"Anyone who thought that people smugglers might be able to overwhelm this policy will be confronted by these plans and realise just how serious the government is."
Opposition immigration spokesman Scott Morrison mocked the 10,000 figure.
"Labor's claims ... are getting more and more desperate as the deal continues to unravel by the day," he told AAP.
He said the federal government had failed to provide details about how it would access land and build service roads and infrastructure on the remote island.
Meanwhile, authorities intercepted another suspected asylum seeker boat north of Christmas Island on Sunday.
A radar on Christmas Island detected the vessel carrying 16 people.
The passengers have been detained on the island for health and security checks.
It's the 22nd boat to arrive since July 19, when the Rudd government announced its new policy which will see asylum seekers processed on Manus Island and those found to be refugees resettled in PNG.
Those boats were carrying nearly 1600 people.
On Saturday, the Rudd government announced a similar deal with the Nauru government.
Refugee advocate group ChilOut has dismissed the plan as an "absurd election grab".
"This announcement is an expansion of the mess we already have," spokeswoman Sophie Peer said.
