Canberra announced in August that refugees arriving by boat would be sent to two Pacific islands and almost 400 are now held on the tiny nation of Nauru, despite Amnesty International's criticism of conditions there as "completely unacceptable".
Immigration Minister Chris Bowen said the first transfer of asylum-seekers to PNG went ahead Tuesday, with four children and 15 adults belonging to seven families from Sri Lanka and Iran sent to Manus Island.
But he acknowledged that, given the thousands of boatpeople who have arrived since the government announced its new policy, it would not be possible to transfer them all to Nauru or Manus Island in the immediate future.
"So some people... will be processed in Australia and processed in the community, but will remain on bridging visas, even after they are regarded, through the process, as refugees," he told reporters in Sydney.
"They will still be subject to potential future transfer to Nauru or Papua New Guinea at a date when increased capacity becomes available."
The centre-left Labor government has struggled to deal with an influx of asylum-seekers arriving by sea, with more than 7,000 boatpeople landing since the tough new policy was announced.
A record of more than than 15,500 have arrived in 2012.
Bowen said transfers to Nauru and Manus Island, which will ultimately have a combined capacity of about 2,100, would continue but the government would begin releasing some asylum-seekers into the Australian community on bridging visas.
Consistent with the government's aim of giving "no advantage" to people who bypass regular immigration channels and come to Australia by boat, while on these visas they will have no work rights and only limited financial help.
The government is also repatriating asylum-seekers deemed not to be refugees, sending home 100 Sri Lankan men on Wednesday, bringing to 426 the number involuntarily returned to Colombo in the past three months.
"Our humanitarian programme is for people who are at risk of persecution, not for people seeking to undertake economic migration," Bowen said.
Canberra will also reopen an immigration centre in Tasmania and expanded capacity in Melbourne to deal with the influx.
Refugee advocates have criticised the Pacific policy, under which Bowen said refugees could spend as long as five years in the remote camps.
Canberra has defended its decision to process boatpeople offshore as an attempt to stop them risking their lives on the journey to Australia, during which scores have died, and insists all are treated humanely.
Amnesty's Graham Thom, who has just visited Nauru, said the conditions the refugees were living in had prompted hunger strikes, suicide attempts and self-harm on the island.
"In the front of their minds is the fact that they're not being processed, the uncertainty that's facing them is clearly having an impact on their mental health," he said, according to an ABC report.
The Australian Human Rights Commission has also raised concerns about the involuntary removal of asylum-seekers and transfers offshore.
"States cannot avoid their international law obligations by transferring asylum seekers to a third country," president Gillian Triggs said.