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Asylum seekers will be processed in Australia for the foreseeable future, but Prime Minister Julia Gillard says Labor will continue to pursue offshore processing.

After a morale-building win on the carbon tax, the Government was yesterday forced to back down on its plan to process asylum seekers in Malaysia.

Ms Gillard says Opposition Leader Tony Abbott must take the blame for an expected increase in boat arrivals, but the Coalition says the Government only has itself to blame.

The Government’s proposed legislation would have secured the future of offshore processing and allow it to send asylum seekers to Malaysia, but there was not enough support to get it through Parliament.

Ms Gillard made the announcement after a meeting of the Labor Caucus on Thursday afternoon, which was held amid a high-stakes political stand-off with the Opposition.

For now, Labor will process asylum seekers onshore, with about 2,500 places currently free in detention centres and community detention.

Once those places are exhausted bridging visas will be granted, allowing asylum seekers to live and work in the community and apply for limited welfare support.

But the Government is sticking by its plan to change the Migration Act to allow the Malaysia deal to go ahead.

Ms Gillard says the Government’s proposed amendments will remain on the parliamentary notice paper until the Opposition is prepared to back them.

“The Leader of the Opposition is fond of saying that I should make various phone calls [to Nauru],” she said.

“If the Leader of the Opposition wants offshore processing for Australia… he needs to ring this Prime Minister and vote for the amendments.

“We are at real risk as a result of Mr Abbott’s conduct of seeing more boats and that will put pressure on the detention network.”

Ms Gillard says the Government will honour its commitment to Kuala Lumpur to take 4,000 refugees from Malaysia.

“We are intending to do that within our current humanitarian quota,” she said.

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