"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," the prime minister told the Lowy Institute think-tank in Sydney.
Gillard, who ousted Kevin Rudd in a party coup last month and is facing national polls this year, also ended a three-month freeze on processing Sri Lankan asylum-seekers and said a bar on Afghan claims was under review.
She said the planned new centre, which has initial support from East Timor and New Zealand, would slash the number of poor migrants who have caused headaches for successive governments.
The aim is to "wreck the people-smuggling trade by removing the incentive for boats to leave their port of origin in the first place; to remove both the profitability of the trade and the danger of the voyage", she said.
The Welsh-born leader, whose parents emigrated to Australia in 1966, has made immigration her top priority after defusing a mining tax row that helped bring down Rudd.
She said she has discussed the new centre with East Timor's President Jose Ramos Horta, New Zealand Prime Minister John Key and the United Nations High Commissioner For Refugees, Antonio Guterres.
Australia currently sends asylum-seekers to its Indian Ocean processing centre on Christmas Island, after Rudd scrapped Howard's Pacific Solution of detaining migrants in neighbouring countries.
"I told the High Commissioner that my government is not interested in pursuing a new Pacific Solution," Gillard said.
New Zealand's Key said he spoke with Gillard late on Monday and gave his approval for the centre, which he said would act as a deterrent and would also reward legitimate asylum-seekers.
"The first thing I would say is that New Zealand is not immune to that issue," Key told reporters during a visit to Seoul.
"I have been warning New Zealanders for quite some time that these boats are becoming larger and therefore more capable of coming to New Zealand."
Gillard also slammed criticism that she was encouraging "rednecks" by calling for an end to "political correctness" in the long-running debate, a chronic flashpoint of Australian politics.
"It is wrong to label people who have concerns about unauthorised arrivals as 'rednecks'," she said.
The prime minister said Australia received just 0.6 percent of the world's asylum-seekers, making up less than eight percent of its migrants, but stressed that those who arrive must fall into line.
"That means... they accept their responsibilities as members of the community -- to learn English, get a job, and send their kids to school like everyone else," she said.
She also pledged to work for measured population growth in the vast but sparsely inhabited country, rejecting Rudd's "Big Australia" vision, which embraced a 60 percent boom in numbers by 2050.
"We are very roughly the same size as America and we are a great country like America -- but we are not America," she said. "We do not have the inland sprawling plains, fertile soils and cities for that kind of population."
Asylum-seekers and population growth are likely to be hot issues in the elections, which Gillard's Labor Party is currently favoured to win.
Immigration was the first issue to affect Rudd's huge popularity after beating Howard in 2007 polls, as he became embroiled in a lengthy tangle with Indonesia over the fate of two boats last year.
His ratings fell further as he failed to enact carbon trading laws and then quarrelled with the powerful mining industry over a new tax, a dispute that Gillard settled just days after seizing power.