Refugees on Nauru could soon be resettled in impoverished Cambodia following a controversial deal with Australia.

Immigration Minister Scott Morrison signed a memorandum of understanding with Cambodian Interior Minister Sar Kheng in Phnom Penh on Friday, to allow refugees processed on the Pacific Island of Nauru to resettle in the Asian country.

The offer is voluntary and only applies to asylum seekers sent by Australia to Nauru who have been found to be refugees.

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“A number of those found to be in genuine need of protection will now have the opportunity and support to re-establish their lives free from persecution,” Mr Morrison said in a statement.

“As a party to the Refugees Convention, Cambodia, while making countless efforts to develop the country after the civil war, is demonstrating its ability and willingness to contribute positively to this humanitarian issue.”

The Australian government will give Cambodia $40 million in extra development assistance over the next four years in return. This is in addition to $79 million already provided.

Mr Sar Kheng stressed that Cambodia was a signatory to the United Nations Refugee Convention and other international refugee protocols.

“Therefore, offering the settlement of refugees is considered a humanitarian activity which will help them start a new life in accordance with Cambodian laws,” he said.

Mr Morrison hopes some can be resettled by the end of this year and is working to ensure the proper processes are in place.

The government isn’t ruling out extending the deal to refugees on Manus Island.

There’s no cap on how many can take up the offer and language training would be part of the resettlement package.

The agreement has been criticised by aid and human rights groups as inappropriate, immoral and likely illegal.

There are concerns that Cambodia’s poor human rights record puts any resettled asylum seekers at risk and that the poverty-stricken country is ill-equipped to handle them.

Mr Morrison said the arrangement “challenged traditional institutional thinking” on how to address these issues.

“Our aim is to remain positively focused on delivering a solution, and not be distracted by the negative characterisations that sadly and typically accompanies new initiatives.”

Cambodia has high poverty rates and high unemployment but Mr Morrison has said he believes Australia should “give them a go”.

About 100 people, including Buddhist monks, protested outside Australia’s embassy in Cambodia against the deal.

Ou Virak, chairman of the nonpartisan Cambodian Centre for Human Rights, said his country “couldn’t give humanitarian support even if we wanted to”.

“Cambodia is poor as hell. Most of her people do not have access to decent health care, education. Money alone will not able to fix these things for the refugees,” he said in an interview by email with AP.

“I think they will be left in limbo for years.”

Australia pays Nauru to house asylum seekers and has a similar deal with Papua New Guinea. Human rights groups have criticised living conditions at the camps.

The UN’s refugee agency, the UNHCR, said in a statement it was “deeply concerned at the precedent set” by Australia’s resettlement agreement with Cambodia.

“Refugees are persons who are fleeing persecution or the life-threatening effects of armed conflict,” UN High Commissioner for Refugees Antonio Guterres said.

“They are entitled to better treatment than being shipped from one country to the next.”

Mr Guterres urged Australia to “reconsider its approach” to refugees.