Experts said that Australia should set up processing centres in Nauru and Papua New Guinea.
Labor closed a centre on Nauru in 2008, ending years of bitter controversy over the so-called Pacific Solution.
Meanwhile, 67 asylum seekers are reported to be missing at sea.
Some 600 asylum seekers are believed to have died making the dangerous journey by boat to Australia since late 2009, Australian media report.
Australian customs officials are investigating reports that a boat thought to be carrying 67 has gone missing after leaving Indonesia for Australia. There are ''very grave fears'' over the fate of the people, Home Affairs Minister Jason Clare said.
"Unfortunately have not found any evidence that those people have arrived in Australia," he told reporters.
Source: Australian Department of Immigration and Citizenship
In a report released on Monday, an independent panel appointed by Prime Minister Julia Gillard said the two offshore facilities should be established ''as soon as possible'' as part of a ''comprehensive regional network''.
Opposition leader Tony Abbott said he welcomed legislation for offshore processing.
"To the extent that this legislation allows good policy we will support it," he told ABC news.
Ms Gillard had been pushing for a compromise deal on the issue.
Her governing Labor Party backed a refugee swap deal with Malaysia, under which Australia would send 800 asylum-seekers who arrived by boat to Malaysia and receive 4,000 refugees in return over four years.
Last year a court ruled against such a move, saying Malaysia - which has not signed UN refugee conventions - did not offer adequate protection.
In its report, the panel, headed by former defence chief Angus Houston, called for the agreement to be built on rather than being discarded or neglected, and for safeguards and accountability to be strengthened.
The opposition, however, said it would not support the Malaysia deal.
The panel said its recommendations, aimed to encourage people to seek asylum through official channels and reduce the number of illegal boat arrivals, should be implemented as a whole.
The three-men panel set out 22 key recommendations in its report, including:
"We recommend a policy approach that is hard-headed but not hard-hearted. That is realistic not idealistic,'' said Mr Houston, in a press statement.
In its report, the panel also noted that the conditions necessary to turn back boats in safe and lawful ways are "currently not met", but this could change in the future.
Implementation would cost AU$1bn a year ($1.bn; £670m), it added.
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