Sydney – East Timor has again rebuffed Canberra's proposal that it host an immigration detention centre where asylum seekers arriving in Australia could be held while their applications for Australian visas were processed, news reports said Monday.

With 109 boats carrying 5,254 asylum seekers arriving last year, and more than 5,000 in detention, Prime Minister Julia Gillard's Labor government is casting around for a way to deter people-smugglers using Indonesia as a transit point to bring mostly Middle Eastern asylum seekers into Australia.

The previous Liberal-led government staunched the flow of asylum seekers by packing them off for processing in the tiny Pacific nation of Nauru or on Papua New Guinea's Manus Island.

In the year before Labor came to office only six boats arrived, carrying 60 people. The flow gathered pace after Labor abandoned what former prime minister John Howard had called the Pacific Solution.

East Timor Deputy Prime Minister Jose Luis Guterres told Portuguese news agency Lusa that the impoverished half-island could not accept Gillard's proposal. "Why not in Australia itself, which has an immense territory and available resources?" Guterres asked in an interview with Lusa in New York.

Gillard stunned Australians in July by saying an offshore immigration detention centre would be built in East Timor.

She admitted later that she had not spoken to East Timor Prime Minister Xanana Gusmao about her plan and had only floated the idea with Jose Ramos Horta, who holds the largely ceremonial post of president.

All four parties in East Timor's ruling coalition have rejected the idea. "The prime minister must accept East Timor does not want an asylum-seeker centre," opposition Liberal Party spokeswoman on foreign affairs Julie Bishop said.

Spokesman on immigration Scott Morrison also said Gillard should admit the bid was over: "The East Timor processing centre is a thought bubble that has popped."