Papua New Guinea on Wednesday said a controversial asylum-seeker camp on Manus island will close, throwing Australia's border protection policy into disarray.

It follows a Supreme Court ruling on Tuesday that detaining people at the Australian-funded facility was unconstitutional and illegal.

‘Respecting this ruling, Papua New Guinea will immediately ask the Australian government to make alternative arrangements for the asylum-seekers currently held at the Regional Processing Centre,’ Prime Minister Peter O'Neill said in a statement.

Canberra has been criticised internationally for sending asylum-seekers who attempt to enter the country by boat to remote processing centres on Manus island or the tiny Pacific outpost of Nauru, with no hope of being settled in Australia.

Ahead of O'Neill's decision, Australian Immigration Minister Peter Dutton insisted the government's border protection policy remained valid despite the court ruling.

He insisted that none of the 850 men held on Manus would come to Australia, and must either return to their home country or settle in a third country.

O'Neill said he did not anticipate asylum-seekers being kept at Manus for long.

‘For those that have been deemed to be legitimate refugees, we invite them to live in Papua New Guinea only if they want to be a part of our society and make a contribution to our community,’ he said.

‘It is clear that several of these refugees do not want to settle in Papua New Guinea and that is their decision.’

He added that negotiations with Australia would focus on the timeframe for closing the centre and managing the settlement of legitimate refugees interested in staying in Papua New Guinea.

Canberra currently has an arrangement with Cambodia, along with PNG, to resettle those found to be refugees.

Australian media have reported that it is also trying to negotiate deals with Malaysia, Indonesia and the Philippines.