Those not recognized as legitimate refugees would be sent packing again.
The government has kicked off an ad campaign on traditional and social media in various pan-Asian languages to warn of the possibility of getting stuck in the new asylum cul-de-sac.
It has drawn hefty criticism from some Australian politicians as being inhumane.
As a consolation, if fewer boats arrive as a result of the policy, Australia plans to raise the number of legal asylum seekers it takes, Rudd said.
Human trafficking and votes
The new law is designed to discourage "boat people" from paying human traffickers thousands of dollars to ferry them to Australia on unseaworthy crafts.
"Our country has had enough of people smugglers exploiting asylum seekers and seeing them drown on the high seas," said Rudd, who previously served as foreign minister.
He is also tired of watching Australian crews risk their lives to fish passengers from waters in front of the Christmas Islands, where rusting buckets carrying them invariably capsize.
The number of illegal immigrants arriving by boat spiked between 1999 and 2001, according to the Australian parliament, only to flatline after a few years.
There has been a recent uptick, which has become an irritant to some Australians.
Rudd, who heads the left-wing Labor Party, faces an election in September, and his opponent's Liberal Party has dominated in the polls.
His party recently voted down former Prime Minister Julia Gillard who was widely unpopular and put Rudd in her place to court favor with voters before time runs out.
The new law, which Rudd's government delivered, could also play well with more conservative Australian voters and garner Rudd's party more votes.
Back on Nauru, things have calmed down.
Authorities have moved the asylum seekers to an alternative location and have set up tented temporary housing.
The flames spared the kitchen, so there is food to go around for the "transferees."
And the rioters may face legal consequences for their actions, Australia's immigration minister said. They could wander from the refugee camp to jail.
"The sort of crimes that appear to be committed are serious -- with prison sentences," Tony Burke said.
But they have returned to the camp.
There is no place else for them to go on the tiny island, or much of anywhere else.