Australia's detention of asylum seekers in Papua New Guinea has been ruled illegal by a court.

The fallout from Papua New Guinea's Supreme Court decision comes as an Iranian refugee at Australia's other offshore detention centre on Nauru set himself on fire in an apparent protest over Australia's strict asylum seeker policies.

Australian immigration minister Peter Dutton said the man would be airlifted off the Pacific island nation for medical treatment.

The court ruling and incident on Nauru have prompted fresh questions about Australia's divisive policy of refusing to accept asylum seekers who try to reach its shores by boat.

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