SYDNEY (AFP) - The first asylum-seekers to be sent to Papua New Guinea under Australia's hardline new boat people policy arrived on Thursday, with the government declaring people-smugglers no longer have a product to sell.

Their arrival formally brought into effect an arrangement agreed on July 19 under which those who turn up in Australia on unauthorised boats will be sent to PNG for processing and resettled there - even if judged to be genuine refugees.

The 40 asylum-seekers, mainly Iranian and Afghan men, were flown from Australia's Indian Ocean territory of Christmas Island on Wednesday night, accompanied by Australian police and medical staff, the immigration department said.

Immigration Minister Tony Burke said it showed Canberra was serious about not resettling boat people in Australia.

"Over time, every single person who arrives under these new rules will find the government is true to its word," he said.

"As of now there are the first 40 people in Papua New Guinea who are realising that the people-smugglers no longer have a product to sell.

"That the promise of living and working in Australia, which is sold by people smugglers before they push people onto the high seas, is no longer a product available."

Rights groups have criticised the state of facilities at Australia's camp on Manus Island in PNG, which will be significantly expanded, with the United Nations last week saying it was "troubled" by the decision to send asylum-seekers there.

The UNHCR highlighted "significant shortcomings" in the legal framework for receiving and processing asylum-seekers.

"These include a lack of national capacity and expertise in processing, and poor physical conditions within open-ended, mandatory and arbitrary detention settings," it said.

Australia resumed sending asylum-seekers offshore to PNG's Manus Island and the Pacific state of Nauru in 2012 in a bid to deter record numbers of asylum-seekers arriving by boat. Hundreds have drowned making the perilous journey.

But under the new arrangement they will not only be processed in PNG but permanently resettled there if found to be genuine refugees.

The transfer comes as PNG Prime Minister Peter O'Neill outlined the costs of major projects Australia has agreed to fund as part of the deal.

In an interview with The Australian newspaper, he said the total cost would be around A$787 million (S$901 million), with Australia contributing about A$489 million.

This includes the rebuilding of a hospital and renovation of PNG's universities, which will be jointly funded, and the construction of a key highway between Lae and Madang and a new court building in the capital Port Moresby that Canberra will solely fund.

Mr O'Neill said his country had agreed to help because Australia was "our best friend" and "we are a Christian nation".

Asylum-seekers are a sensitive issue in Australia, and one featuring prominently in the lead-up to national elections due this year, which will pit the Kevin Rudd-led Labor government against the conservative opposition headed by Tony Abbott.