"We can discuss the possibility of allocating an island. But Australia is required to finance it entirely," Pandjaitan was quoted saying in The Jakarta Post.
The matter will be finalised when the Indonesian and Australian leaders meet on Dec. 22, the spokesman said, adding that the meeting would also cover terrorism and trade, among other issues.
Australian Prime Minister Malcolm Turnbull met his counterpart President Joko Widodo for the first time last week, hoping to heal ties that were strained by his predecessor, Tony Abbot, who had angered Jakarta with his policy of towing back to Indonesia vessels carrying asylum seekers, among other issues.
The policy, while popular at home, infuriated Jakarta, which sees it as an infringement on its sovereignty. Indonesia welcomed migrants from Myanmar and Bangladesh earlier this year, and urged the international community to share the burden of resettling them.
Australia has also received criticism from the United Nations and rights groups for its hardline policy of intercepting asylum seekers who come by boat.
Since 2012, people on boats attempting to reach Australia have been turned back or taken to camps in Nauru, where there have been reports of assaults and systemic child abuse, or Papua New Guinea, where Canberra has set up processing centers.
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