The country will introduce legislation allowing their deportation to the poor Pacific nations of Papua New Guinea and Nauru to face lengthy stays in detention camps.
Gillard's center-left Labour Party had long argued against the concept of Australian-funded detention camps on the island nations as an expensive waste of money that would fail to deter new arrivals.
But she said her government has accepted the recommendation of an expert panel on Monday to reopen camps established a decade ago by a conservative administration, and that legislation to enable the deportation of asylum seekers will be introduced to Parliament when it resumes Tuesday after a six-week break.
The decision was a spectacular back down in the divisive political debate about how to stop the growing number of asylum seekers reaching Australia in rickety fishing boats.
"When our nation looks at what is happening at sea as people attempt dangerous journeys to Australia, too many lives have been lost and I'm not going to play politics or look at political scoreboards when too many lives have been lost," Gillard told reporters after her Cabinet gave its support in principle for all the recommendations in the expert panel's report.
The report aims to curb boat arrivals by removing any advantages that asylum seekers might gain in their refugee claims by reaching Australia. It was drawn up by a panel headed by former Australian Defence Force Chief Angus Houston and combines policy proposals by the major political parties, who have been bitterly divided on the issue.
Human rights group Amnesty International described the report's recommendations as a major setback for Australian refugee policy.
Gillard commissioned the report six weeks ago after two people-smuggling boats capsized between Indonesia and Australia within a week, with more than 90 asylum seekers believed to have drowned. She said she hoped the report's findings would break the political deadlock on the issue.
More than 7 000 asylum seekers – many from war-torn countries including Afghanistan, Iraq and Sri Lanka – have reached the Australian Indian Ocean territory of Christmas Island in more than 100 boats so far this year.
Many Australians resent the growing numbers of asylum seekers arriving on Australian shores and the issue has emerged as a major threat to the survival of Gillard's government in elections due in late 2013. The growing death toll from the dangerous voyages has heightened the political imperative to stop the traffic.
The Senate in June rejected legislation that would have allowed the government to deport asylum seekers to Malaysia.
The Labour Party has wanted to send asylum seekers to Malaysia as part of a swap deal in which Australia would resettle bona fide refugees from Kuala Lumpur registered with the United Nations.
The conservative opposition argues that asylum seekers' rights would not be respected by Malaysia because it has not signed the UN Refugee Convention. It maintains the detention camps should be in Nauru and Papua New Guinea, where both governments have expressed support.
The report recommends the Nauru and Papua New Guinea centers be quickly re-established. It also said that the Malaysian deal needed more work to address human rights concerns, "rather than being discarded or neglected."
Opposition immigration spokesperson Scott Morrison welcomed the report as an endorsement of his party's policies. But he did not promise the opposition support the government needs to pass the legislation through Parliament.
Houston said asylum seekers should spend less than five years in the Australian-commissioned camps. – Sapa-AP