Australia is looking to reopen an asylum processing center on the Micronesian island of Nauru, at 8 square miles the world's smallest republic.

Australia's Labor government said it will agree with opposition leader Tony Abbott to start negotiations with Nauru.

But, in return, Labor wants Abbott to back legislation that would legalize the government's stalled plans for also sending asylum seekers to another processing center in Malaysia.

Nauru, in the South Pacific, has a population of just more than 9,000 and is under the protection of Australia, although it has been independent since 1968. The almost circular island is noted for its phosphate mines, now exhausted.

From 2001-08, it accepted aid from the Australian government in exchange for housing a refugee center.

The government's tussle with the opposition is the latest chapter in Australia's complex refugee problem. The country is targeted by thousands asylum seekers trying to reach the mainland by boat, often with tragic consequences.

Last week more than 150 people were drowned when an unseaworthy vessel with around 400 asylum seekers capsized in rough seas around 40 miles off the coast of the Indonesian island of Java.

The Indonesian government is piecing together events that led up to the sinking, including a hunt for missing crew believed to be part of a people smuggling operation.

Thousands of asylum seekers try to reach Australia by boat every year. Many are put in the main detention center on Christmas Island rather than taking them to the mainland. The island is in the Indian Ocean around 1,600 miles from the western Australian city of Perth but only 220 miles south of Jakarta.

However, the island's controversial detention centers are overcrowded. The situation led the Australian government to agree with Malaysia -- another country from where many people smugglers operate - to a refugee exchange.

Australian Prime Minister Julia Gillard had hopes that the deal with Malaysia would send a message to would-be asylum seekers that their voyage to Australia would be fruitless because entry to Australia would not be automatic.

Australia was to send up to 800 rescued asylum seekers to Malaysia over the next four years. In return, Australia was to take 4,000 bona fide refugees -- not asylum seekers -- from Malaysia.

But just before the first group of boat people asylum seekers was to leave Australia for Malaysia, a human rights group obtained a court order stopping it on grounds that a standard of care couldn't be guaranteed. An Australian court ruled the agreement illegal.

Gillard became embroiled in political controversy when she heavily criticized in public the High Court ruling. Gillard said on national television the ruling "basically turns on its head the understanding of the (migration) law in this country."

The court's ruling was a "missed opportunity to send the strongest possible message to people smugglers (and to) asylum seekers not to risk their lives at sea," she said in September.

To get around legal issues, Gillard needs the opposition's support for legislation that would enable the Malaysian agreement to stand up to legal scrutiny.

Getting the opposition on board for the Malaysian option isn't a sure thing for the government, although Abbott said he is happy to talk through the Christmas period to get some sort of agreement.

Abbott has said the Malaysian deal "plainly won't work because it didn't stop the boats after it had been announced."

Abbott also denounced the deal's imbalance whereby Australia is landed with more refugees. "It's a five-for-one people swap and it doesn't involve any serious protections for people sent there (Malaysia)."