The Gillard government's plan for an immigration detention centre in East Timor appears doomed after President Jose Ramos-Horta rejected it.
Dr Ramos-Horta says Dili will not agree to a centre in the country on a bilateral basis with Australia.
It comes as yet another asylum seeker boat-- with more than 80 people on board-- was intercepted by the Navy off Ashmore island.
Immigration Minister Chris Bowen as recently as Wednesday confirmed talks were still under way with the East Timor government on setting up a centre and that Dr Ramos-Horta believed it was still a possibility.
But the Timor president is quoted in local media as saying: "Timor-Leste (East Timor) says that we will not agree to set up an asylum-seeker processing centre in the country."
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Opposition Leader Tony Abbott said the comment was the "final nail in the coffin" for the centre.
"It was always a flight of fantasy, it was always just a confection designed to get the government through an election campaign," Mr Abbott told reporters in Alice Springs on Friday.
He said Prime Minister Julia Gillard should ask Nauru to reopen the centre funded by the Howard government.
"She should not be scared of the fact that this would vindicate the policies of the former government because let's face it, the policies of the former government worked, unlike the current policies of this government," Mr Abbott said.
The government has rejected reopening the Nauru centre as it is not a signatory to the United Nations protocols for refugees.
