World Vision's Tim Costello says keeping asylum seekers on Manus Island and Nauru is psychological torture.
'There's no question that the psychological torture of not being able to actually resettle, and you can't go back home, is torture,' he told Sky News on Sunday.
Mr Costello said the Somalian woman who set herself on fire on Nauru showed how desperate the federal government's refugee policy was making people.
'World Vision works in Somalia and 98 per cent of women suffer female genital mutilation. Somalia is a terrifying place,' he said.
'You would flee that, I would flee that.'
The Howard government's Pacific Solution meant there was no 'indefinite torture' on Nauru or Manus Island, Mr Costello said.
'It did stop the boats and quietly allowed all those who were found to be refugees - and it was 85 to 90 per cent - to be resettled back in Australia.'
He said Immigration Minister Peter Dutton's comments about refugees being 'illiterate' and taking Australian jobs were made because they resonated with some voters.
'The toxic (refugee) debate has leeched out something of the Australian soul,' Mr Costello said.
Boosting Australia's aid budget was crucial to solving the world's refugee crisis, he said.
Opposition Leader Bill Shorten has conceded the Mr Costello had a point, vowing to make regional resettlement a priority if he became prime minister after the July 2 election.
'The best answer is to defeat the people smugglers and make sure that the people in our care, directly or indirectly, get proper resettlement,' he told reporters in the inner-west Sydney seat of Reid
However, Prime Minister Malcolm Turnbull said he didn't accept Mr Costello's claim.
'It is absolutely critical that we maintain a secure border protection policy,' he told reporters in his eastern-Sydney electorate.
'That is why it is absolutely critical that people who seek to come to Australia through the services of people smugglers are not able to settle in Australia.'
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