Australia will also contribute funds to reform the impoverished Pacific nation's university sector and support other health, education and law and order initiatives, although no dollar figure was put on the aid.
"From now on, any asylum-seeker who arrives in Australia by boat will have no chance of being settled in Australia as a refugee," said Rudd, unveiling his new hardline border protection policy in an election year flanked by PNG counterpart Peter O'Neill.
Asylum-seekers arriving at Australia's far-flung Christmas Island will be sent to the Manus Island processing centre on Papua New Guinea and elsewhere in the Pacific nation for assessment, with no cap on the number to be transferred.
Even if found to be "genuine refugees" Rudd said asylum-seekers would have "no chance" of settlement in Australia under the harsh new policy.
Those whose applications were not successful would be sent back home or to third countries.
The Regional Settlement Arrangement, which was signed by the