Papua New Guinea said Wednesday it will close down the Australia-run migrant centre on Manus Island after the Supreme Court found it to be unconstitutional.

The Australian-run camp infringed on the personal liberty of its detainees, and the arrangement between governments was "outside the constitutional and legal framework in PNG," the court ruled Tuesday.

"Respecting this ruling, Papua New Guinea will immediately ask the Australian government to make alternative arrangements for the asylum-seekers currently held at the regional processing centre," Prime Minister Peter O'Neill said Wednesday.

Australia's Immigration Minister Peter Dutton said "we will continue discussions with the PNG government to resolve these matters," adding that none of the 900 people in the Manus facility will be settled in Australia even if granted asylum.

Australia intercepts all migrants travelling by sea, and either turns them back or processes their asylum claims offshore in places such as Papua New Guinea and the Pacific island state of Nauru.

O'Neill said Wednesday he will negotiate with Australia on the timeframe for closing the Manus facility.

"For those that have been deemed to be legitimate refugees, we invite them to live in Papua New Guinea only if they want to be a part of our society and make a contribution to our community," he said.

"It is clear that several of these refugees do not want to settle in Papua New Guinea and that is their decision."

He also said he was proud that his country was able to play an important part in stopping the loss of life at sea as migrants pay people smugglers to make the unsafe crossing.

"We appreciate the reasons why people might seek to make such a perilous journey to find a better life," fleeing from war or disaster, he said. "As a global community we need to step up and do more to help."

O’Neill conceded the closure will have a detrimental effect on the local economy, which would have to be carefully managed.

The Australian cabinet is set to hold a meeting on the decision on Wednesday night.

Also Wednesday, a 23-year-old Iranian asylum-seeker was in a serious condition after setting himself alight in another Australian-run processing centre in Nauru.

Footage shows the man shouting, "I can not take this any more" before setting himself on fire. Bystanders then rush to douse the flames with water and blankets.

Officials from the United Nations refugee agency UNHCR were on the island to see conditions of the detainees. It was not clear whether the man set himself on fire in front of them.

"The condition of the male refugee is listed as critical, and we have requested an immediate medical evacuation," the Nauruan government said in a statement.

Dutton said the victim would be airlifted for treatment, but warned his actions would not influence his application for asylum.

"If people think that through action of self-harm or harming a member of their family, that is going to result in them coming to Australia and staying here permanently, that will not be the outcome," Dutton told reporters in Melbourne.

The Nauruan government condemned the attempt to "influence the Australian government's offshore processing policies," asking migrants to "refrain from such protests."

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