PM Tony Abbott has refused to deny reports that an Australian navy ship paid the crew of a migrant boat to turn back to Indonesia.
But Mr Abbott said Australia had developed "incredibly creative" approaches to stopping asylum boats from reaching Australia.
Australia's immigration and foreign ministers have denied allegations a payment was made to the crew.
But Indonesia's foreign ministry has said it is "very concerned".
'Saw with my own eyes'
Police in Indonesia's East Nusa Tenggara province said earlier this week that they had detained the captain and crew of a boat on people-smuggling charges in late May.
Australia has a zero tolerance approach to migrant boats approaching its territory
The migrants - from Bangladesh, Myanmar and Sri Lanka - were reportedly heading to New Zealand and are being held on the remote Rote island about 500km (310 miles) north-east of Australia.
They told police that an Australian navy ship intercepted them at sea, and an immigration official on board paid them each A$5,000($3,900; £2,500) to turn back to Indonesia.
Local police chief Hidayat told AFP news agency: "I saw the money with my own eyes. This is the first time I'd heard [of] Australian authorities making payments to boat crew."
The Australian Broadcasting Corporation (ABC) and Radio New Zealand reported similar allegations from passengers.
Analysis: Jon Donnison, BBC News, Sydney
The prime minister's refusal to deny reports that Australian officials are now paying people-smugglers to turn back suggests Mr Abbott is now using financial means to meet his pledge to stop the boats.
His claim that Australia was doing so by "hook or by crook" indicates that he knows such methods stretch ethical boundaries.
Australia has been hammered by human rights groups for its tough policies. But they've worked.
Two years ago tens of thousands were trying to reach Australia's shores by boat. Today that number has been reduced to virtually nothing and polls show, despite the international criticism, Mr Abbott broadly has his public's support.
Speaking to Radio 3AW on Friday morning, Mr Abbott would not deny the allegation that a payment had been made, but said immigration personnel had developed "creative strategies" to stop the migrant boats.
"We have stopped the trade and we will do what we have to do to ensure that it stays stopped," he said.
Under Australia's controversial policies, no migrants and asylum seekers are allowed to reach its territories by boat. They are instead intercepted at sea and turned back or taken to detention facilities on the island nation of Nauru and on Manus Island in Papua New Guinea.
Australia and asylum
- Asylum seekers - mainly from Afghanistan, Sri Lanka, Iraq and Iran - travel to Australia's Christmas Island by boat from Indonesia
- The number of boats rose sharply in 2012 and early 2013. Scores of people have died making the journey
- To stop the influx, the government has adopted hard-line measures intended as a deterrent
- Everyone who arrives is detained. Under a new policy, they are processed in Nauru and Papua New Guinea. Those found to be refugees will be resettled in PNG, Nauru or Cambodia
- Tony Abbot's government has also adopted a policy of tow-backs, or turning boats around
- Rights groups and the UN have voiced serious concerns about the policies and accuse Australia of shirking international obligations
- Source BBC
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