Immigration Minister Scott Morrison says he's "taking the sugar off the table" by shutting the door on all refugees registered with the United Nations in Indonesia.
Mr Morrison says Australia will no longer accept asylum seekers who apply for resettlement after July 1 through the United Nations High Commissioner for Refugees office in Indonesia.
The minister has rejected claims the ban extends to UNHCR applicants in other countries.
"The government's announcement only applies to Indonesia," he said.
Refugee advocates and the Greens have criticised the decision as cruel and hard-hearted.
But Mr Morrison says the refugee convention wasn't set up so that people could go "forum shopping".
"People think they can transit, sit in Indonesia and use that as a place to gain access to Australia," he told ABC radio.
"This is designed to stop people flowing into Indonesia.
"It's taking the sugar off the table."
Refugee law expert Madeline Gleeson says the government's decision will punish refugees who do the right thing and apply for resettlement through orderly channels.
"The resettlement burden will shift entirely to Australia's allies - including the United States, New Zealand and Canada," the Kaldor Centre researcher told AAP.
The federal government had discussed the plan with Indonesia in recent weeks, but Mr Morrison was unsure whether Prime Minister Tony Abbott and President Joko Widodo spoke about it at the G20 in Brisbane.
The minister maintained Australia supported the UN refugee convention but wouldn't tolerate people smugglers abusing it.
Crossbencher Bob Day backed the new restrictions.
He said Mr Morrison had been successful in stopping the flow of boats to Australia.
"The next step is to stop the influx into Indonesia, and that can only be a good thing for Indonesia," the Family First senator told ABC radio.
The government needed to be "firm and harsh" in solving the problem of people smuggling, he said.
Australian Greens senator Sarah Hanson-Young said the move was "pure arrogance" from the government.
"It's the exact opposite to what Australia should be doing," she told ABC radio. "This flies in the face of any genuine attempt to work with regional neighbours."
She fears it will encourage asylum seekers in Indonesia to risk dangerous boat journeys to countries like New Zealand.
"This is Australia saying we don't give a damn about these people," she said.
Labor's immigration spokesman Richard Marles called on the minister to explain what consultations there had been with Indonesia and the UNHCR and said the opposition is seeking urgent briefings.
"We need to be a generous global citizen when it comes to offering protection," he said.
Independent Nick Xenophon said he supported offshore processing, but described the new resettlement restrictions as "mean spirited".
"We're already taking a tough approach in terms of offshore asylum seekers," he told reporters in Canberra.
"Why you would single out Indonesia in this way doesn't quite make sense."
