Australian Prime Minister Julia Gillard has announced plans to create a refugee processing centre in East Timor.

Under the plan people seeking asylum in Australia would be housed in the centre while their credentials were checked.

Ms Gillard said the move was aimed at thwarting traffickers and that talks with East Timor's President Jose Ramos Horta and the UN had already begun.

Treatment of asylum seekers is a contentious issue in Australia, where elections are expected this year.

OPPOSITION PLAN

The leader of the opposition, Tony Abbott, also announced a new asylum policy yesterday.

Abbott said he would "turn back the boats" by restoring the Pacific Solution set up by former Prime Minister John Howard, under which new arrivals were placed in detention centres in Pacific

states, such as Nauru and Papua New Guinea.

That system was scrapped by former Prime Minister Kevin Rudd and Australia currently sends asylum seekers to its Indian Ocean processing centre on Christmas Island.

However, the detention centre is overcrowded and many asylum seekers have been moved to the mainland while their applications are assessed.

In unveiling her plan for an East Timor processing centre Ms Gillard said that her "government is not interested in pursuing a new Pacific Solution".

However, she claimed that establishing "a regional processing centre removes the incentive, once and for all, for the people smugglers to send boats to Australia".

"The purpose would be to ensure that people smugglers have no product to sell. Arriving by boat would just be a ticket back to the regional processing centre,” she told the Lowy Institute think tank in Sydney.