The government says its approach has helped reduce the number of people who try to reach Australia in dangerous journeys by boat. It says it will not allow any such asylum seekers to settle in Australia.

Australia said it was spending more than $700 million on aid and infrastructure development for Papua New Guinea as part of a 2013 agreement to house and process asylum seekers there. The camp, which is restricted to single men, held 936 detainees as of August. It has been the site of sexual assaults and unrest, including a riot in February 2014 that left a 23-year-old asylum seeker from Iran dead.

“The P.N.G. government has shown with this announcement its commitment to permit those found to be refugees to get on with their lives and have a fresh start in this dynamic nation with a growing economy,” Mr. Dutton said.

But advocates have said that conditions could prove difficult for refugees in Papua New Guinea, which has one of the world’s highest crime rates. Its capital, Port Moresby, has high unemployment and is often ranked in surveys as one of the world’s least livable cities.

Rimbink Pato, Papua New Guinea’s minister of foreign affairs and immigration, said in a statement this week that the resettlement policy had taken time to develop. “It is crucial that we get this right,” he said, adding, “Settlement of refugees is not easy, and we have to ensure refugees are not competing for employment and income-earning opportunities with our citizens.”