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Almost seven years after Australia sent commandos onto a freighter at sea to block illegal immigrants, the government today said it would abandon a controversial policy of jailing asylum seekers.

Immigration Minister Chris Evans said detention in often-remote immigration jails would now be used only as a last resort.

"Desperate people are not deterred by the threat of harsh detention. They are often fleeing much worse circumstances," Mr Evans said in a speech at the Australian National University.

Prime Minister Kevin Rudd in February kept an election promise by axing detention of asylum seekers on small Pacific island nations.

Mr Rudd's predecessor John Howard established the policy in late 2001, splitting the nation between critics and supporters, after a stand-off involving 439 mostly-Afghan refugees blocked from landing in Australia by special forces soldiers.

The Afghans had been rescued at sea by a Norwegian freighter, the MV Tampa, after their fishing vessel sank in international waters on its way to Australia.

Mr Howard's so-called "Pacific Solution", which included sending the navy to blockade Australia's northern coast, was strongly criticised by rights groups and the United Nations High Commissioner for Refugees (UNHCR), which accused Canberra of breaching refugee convention responsibilities.

While detention for asylum seekers and visa overstayers was first introduced by a former Labour government in the early 1990s, its hardline enforcement by conservatives created one of the world's toughest asylum regimes.

A German-born Australian resident, Cornelia Rau, was mistakenly detained for 10 months between 2004 and 2005, prompting a government inquiry and a winding back of enforcement.

In 2005 it was discovered an Australian citizen, Vivian Alvarez Solon, was mistakenly deported to the Philippines by immigration officials after her family listed her as missing.

Mr Evans said the government would retain detention in a limited form for boat arrivals to pose a deterrent to people smugglers, but officials would have to justify why illegal arrivals posed a risk requiring confinement.

"Children will not be detained in an immigration detention centre," he said.

Canberra would retain a tough border policy through a new detention centre on remote Christmas Island, in the Indian Ocean between Australia and Indonesia, to allow health, identity and security checks, he said.

Large detention camps in Australia'st Outback were closed several years ago.

Under the Pacific Solution, more than 1,300 asylum seekers were processed on Nauru, while others were sent to Manus Island in Papua New Guinea in return for millions of dollars in aid to PNG from Australia's government.

Mr Evans said Australia's international reputation had been battered by sweeping confinement of people who often came from shattered or despotic countries in the Middle East and Asia.

Amnesty International said the latest changes would see the release of almost 380 asylum seekers currently in Australian detention.

"Obviously what we're hearing is very good. Australia is the only country that has mandatorily detained anybody who has arrived without a document, and up until 2005 that included families with children," spokesman Graham Thom said.