Phillip Coorey & Kirsty Needham – The Gillard government is believed to have given up on establishing a regional processing centre in East Timor and is now focusing on Papua New Guinea.

Speculation has been building for some weeks about PNG and it was fuelled yesterday when it was revealed that the secretary of the Department of Foreign Affairs and Trade, Andrew Metcalfe, and the parliamentary secretary for Pacific Island affairs, Richard Marles, were in Port Moresby for high-level talks.

Last month, on his way home from a trip abroad, the Foreign Affairs Minister, Kevin Rudd, stopped in Singapore to visit the PNG Prime Minister, Michael Somare, who was having medical treatment.

With Australia's detention centres at capacity and asylum seekers continuing to arrive, the government is suffering politically and is badly in need of a solution.

The opposition has demanded the government use the detention facility on Nauru, the site of the Howard government's "Pacific solution".

But the Prime Minister, Julia Gillard, insists there must be a regional solution with the host nation a signatory to the United Nations refugee convention. PNG is a signatory and there is a mothballed detention facility on Manus Island, which was also used by the Howard government and is expected to be used again by the present government.

The government was playing down the speculation but it is understood PNG is "a live option", given East Timor's hostility.

A spokesman for the Immigration Department, Sandi Logan, said Mr Metcalfe "regularly travels overseas to meet with his counterparts" and his latest trip was part of his regular meetings with PNG immigration and foreign affairs officials. He cautioned against jumping to conclusions.

A spokesman for the Immigration Minister, Chris Bowen, said: "As the minister has already said, the government is engaging with countries across the region about tackling people smuggling and irregular migration, following the endorsement of the regional co-operation framework in Bali. That work continues."

It is Mr Marles's second visit to PNG in six weeks. He met a PNG minister on March 31, at the same time Mr Bowen attended the "Bali process" meeting.

Last July, the then foreign affairs minister, Stephen Smith, briefed the-then PNG foreign minister, Sam Abal, on Ms Gillard's proposal for a regional processing centre.