The news site, The West Australian, says Canberra is poised to deport back to Tehran all Iranians who have failed to be given asylum.
Almost 300 Iranian asylum seekers are on Manus Island in Papua New Guinea and 166 on Nauru as part of Australia's policy to process applicants abroad.
The report says a high-level Iranian delegation visited Australia this week to draw up a memorandum of understanding to allow for the return of the Iranians held in immigration detention camps.
It says it is believed any deal would demand there would be no retribution from the Iranian government towards returned asylum seekers.
The report also says in return for taking back failed asylum seekers, Australia would offer scholarships to Iranian university students and give some work and holiday visas to Iranians.
Last year, one Iranian asylum seeker, Reza Berati, was killed at Australia's Manus camp.
Nobody has been punished for the killing.