SYDNEY - Australia insisted Wednesday it would not bring home a boatload of 78 Sri Lankan asylum seekers rescued off Indonesia, as a stand-off over their fate deepened.

Foreign Minister Stephen Smith said the Sri Lankans, picked up 10 days ago by an Australian customs ship in Indonesian waters, would be processed in Indonesia following an agreement between the two countries' leaders.

"There were always going to be humanitarian, refugee, or immigration implications," Smith told public broadcaster ABC.

"Those implications will be resolved in Indonesia on Indonesian soil, because that's the agreement we have with the Indonesian government."

The Oceanic Viking customs ship has sailed to Indonesia's Bintan but the provincial governor there stopped it docking on Tuesday, complaining the island near Singapore was not a "dumping ground" for refugees.

Prime Minister Kevin Rudd did not rule out using force to disembark the Sri Lankans, including five women and five children, who are reportedly refusing to leave the customs ship.

"Let's just be frank about it, we are dealing with a complex, difficult and challenging set of circumstances," Rudd said.

"I have confidence that our men and women ... will discharge their professional responsibilities with the greatest degree of skill and tact, and humanity."

The migrants are the first test of a "framework agreement" on asylum seekers announced by Indonesia and Australia last week, following a sharp increase in boat arrivals to Australia this year.

Under the deal, Australia has reportedly offered millions of dollars to help Indonesia, a major staging post, accommodate asylum seekers in exchange for greater efforts to stop them sailing to Australia.

But the so-called "Indonesian Solution" is already under fire over reports of overcrowding and abuse in Indonesian detention centres while they await processing by UN refugee officials.