The 21 Sri Lankans who had been held on the tiny island in the South Pacific for nearly a year would be resettled in Australia, Immigration Minister Chris Evans said in a statement.
The dismantling of the system honours a pledge made by the new centre-left government of Prime Minister Kevin Rudd which ousted former leader John Howard and his conservative coalition in November elections.
"The Pacific Solution was a cynical, costly and ultimately unsuccessful exercise introduced on the eve of a federal election by the Howard government," Evans said.
A total of 1,637 people were detained on Nauru or the Papua New Guinea island of Manus under the policy, introduced in 2001 in an attempt to discourage boatpeople from seeking asylum in Australia.
The bulk of the refugees housed on Nauru and Manus had fled Iraq and Afghanistan -- two countries where Australia still has troops committed, Evans pointed out.
Some were sent home, but 1,153 or 70 percent were ultimately resettled in Australi