Despite strong speculation Australia’s new Prime Minister Julia Gillard on Tuesday ended a freeze on Sri Lankan asylum claims and proposed a new regional processing centre in East Timor, tackling a key issue ahead of elections.

Gillard said she had discussed the new centre with East Timor’s President Jose Ramos Horta and New Zealand Prime Minister John Key, with both welcoming the idea.

Earlier the United Nations refugee agency in its revised asylum guidelines say that Tamils from Sri Lanka should no longer automatically be granted refugee status due to the “greatly improved situation” in their homeland.

“The purpose would be to ensure that people smugglers have no product to sell. Arriving by boat would just be a ticket back to the regional processing centre,” she told the Lowy Institute think-tank in Sydney.

“It would be to ensure that everyone is subject to consistent, fair, assessment processes.

“It would be to ensure that arriving by boat does not give anybody an advantage in the likelihood that they would end up settling in Australiaor other countries of the region.”

Gillard, who ousted Kevin Rudd in a party coup and is facing elections this year, is aiming to defuse a chronic political flashpoint which is likely to be a major factor in the polls.

She lifted a three-month bar on Sri Lankan asylum claims, which was strongly criticised by the United Nations, and said a similar freeze on Afghan claimants was under review. “The government has decided to lift immediately the suspension on processing claims of Sri Lankans,” Gillard said.

“I am not immediately ending the suspension of processing of Afghan asylum seekers, but my government will keep that decision under review in the coming weeks and months,” she added.