PNG is one of two Pacific countries paid by Canberra to detain asylum seekers and refugees who attempt to reach Australia by boat.
Australia said its arrangement with PNG would conclude by the end of the year.
But it will continue its divisive "offshore processing" policy on the remote island nation of Nauru.
"Australia's strong border protection policies… have not changed," Home Affairs Minister Karen Andrews said on Wednesday.
"Anyone who attempts to enter Australia illegally by boat will be returned, or sent to Nauru," she added, without clarifying it is not illegal to seek asylum.
The 120 asylum seekers and refugees remaining in PNG will have the option to resettle there or to be moved to detention in Nauru.
During Australia's eight-year presence in PNG, there have been major incidents of violence, including hunger strikes, riots and the murder of an Iranian asylum seeker by guards.
In total, 13 people detained by Australia in PNG and Nauru have died from violence, medical inattention and suicide.
Former detainee and refugee Thanus Selvarasa said the closure was "a good decision, but eight years is too long and PNG is not safe for refugees to resettle".
"We came to Australia seeking asylum, we were moved to offshore processing. They change policy each time, they are playing politics with our lives," he said in a statement.
Other activists called for Australia to provide safe resettlement for the remaining men.
Australia has sent more than 1,900 men to detention centres on the island while their applications for refugee status were being processed.
Many have languished there for years because Australia hardened its immigration law in 2013 to deny resettlement visas to asylum seekers who arrive by boat.
Australia argues its policies are justified because they prevent deaths at sea.
But offshore and indefinite detention has been widely criticised as harmful, inhumane and in breach of international law.
Rights groups and the UN have frequently criticised Australia's centres in PNG and Nauru for substandard conditions.