Australia and East Timor have agreed to hold further talks on a possible Australian-funded asylum seeker processing centre in the country's capital Dili.
Australia's Immigration Minister Chris Bowen met with East Timor's president Jose Ramos-Horta on Tueday to discuss the proposal.
Mr Bowen says they have agreed to set up a high-level working group from both countries, which would continue talks about establishing a regional processing centre in Dili.
"That proposal, that framework, would then allow the governments of Timor Leste, Australia, Indonesia and others further to consider the proposal and put the proposal forward through the Bali Process," he said.
The ABC reports that officials from both countries will meet again next month, with the aim of developing a proposal for the centre by next year.
The measure, a part of Prime Minister Julia Gillard's asylum seeker policy, is a sticking point with East Timor's parliament which has been resistive to setting up the centre.