Australia will spend 100 million dollars over 5-years on the program.
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The Australian High Commission (embassy) in Colombo said the program will start in 2015, after it is piloted in Japan, Indonesia, Singapore and Hong Kong in 2014.
In the pilot program 40 scholarships will be given where students can study for up to one year and mobility grants will be given for 700 undergraduates in Australian universities to out for short term study.
"The New Colombo Plan is intended to be transformational, deepening relationships with the region, both at the individual level and through expanding university, business and other stakeholder links," the Australian High Commission said.
"Over time, the Australian Government wants to see study in the Indo Pacific region become a "rite of passage" for Australian undergraduate students, and as an endeavour that is highly valued across the Australian community."