Australia had requested Indonesia take the group of about 60 people who were picked up by an Australian vessel south of Java on Thursday but Indonesian officials had so far failed to agree to this.
"The Indonesian Government has advised Australian officials overnight that they are reviewing the request put forward by Australia," Immigration Minister Scott Morrison said in a statement.
"While we welcome Indonesia's review of our request, in the best interests of the safety of the passengers and crew of the rescued vessel and the Australian vessel that has been rendering assistance, earlier this morning I requested Lieutenant General (Angus) Campbell to transfer the persons rescued... To Christmas Island."
"They will not be resettled in Australia," he said.
Morrison said the request that Indonesia take the asylum-seekers was consistent with the standard practice given the incident took place inside its search and rescue zone and close to its coast.
"On two recent occasions, Indonesia has agreed to these requests and facilitated an on water transfer," he said.
Australia's new Prime Minister Tony Abbott has vowed to turn asylum-seeker boats back to Indonesia - from where many embark on the dangerous journey - when it is safe to do so.
"The Indonesian government never agreed to such wishes or policies of Australia," Djoko Suyanto, co-ordinating minister for political, legal and security affairs told AFP in a text message.
"Australia already has its own 'detention centres' in Nauru and PNG. That's where the asylum seekers should be sent, not to Indonesia."
The row over the would-be-refugees comes as tensions between the two countries have been under pressure following a report that Australian missions across Asia, including the one in Jakarta, were involved in a US-led spying network.
"We have good relations with Indonesia, good and improving relations, but we will stop these boats," Abbott said during a speech in Perth.
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