The announcement came less than a day after more than 100 former and current staff members at Australia's offshore detention camps called for all refugees to be moved immediately, saying children's lives are being "destroyed."
"Both Papua New Guinea and Australia are in agreement that the center is to be closed," Papua New Guinea Prime Minister Peter O'Neill said on Facebook.
The detention center has been housing asylum seekers since 2012. Refugees arriving in Australia by boat have been transferred to offshore centers in small Pacific nations such as Nauru and Papua New Guinea to make it clear they would not be settling in Australia.
So far, only the Manus Island center is slated to close. The Nauru center remains open.
Speaking from inside the detention center on Manus, Lebanon detainee Ahmed Trad told CNN he hoped the closure would be good for him and his fellow inmates on the island.
"I don't have anything to lose ... we suffer enough really," Trad said. "These two years, they've been very horrible for me."
No settlement in Australia
In a statement detailing stories of abuse and neglect on Manus Island and Nauru, 103 detention camp staff said the government must bring the refugees and asylum seekers back to Australia.
But Australian Immigration Minister Peter Dutton said refugees still in the Manus Island facility would never be settled in Australia.
"It has been the longstanding position of this Government to work with PNG to close Manus and support those people as they transition into PNG or return to their country of origin," he said in a statement.
Reacting to Dutton's comments, Trad described them as soul-destroying.
"No future here, no life, no job, no society, no safety, nothing at all," he told CNN.
'The world needs to hold Australia accountable'
Doctors, teachers, managers and social workers are among the employees who signed a letter to the Australian government in response to the opposition Labor Party
's call for an inquiry into the detention camps.
"It's critical. It's beyond that now," said Eliza Seaborn, a former senior child and youth recreation officer at Nauru with Save the Children Australia
"We don't need another inquiry that will prolong any solution. We need them to be immediately brought to Australia, and the world needs to hold Australia accountable."
In a series of tweets Tuesday, the official Nauru government Twitter account called the reports of abuse fabricated.
Children don't dream anymore, ex-youth officer says
Katie Price, a former child and youth recreation officer on Nauru, said children had ended up devoid of emotion.
"I watched these children's lives being destroyed by these camps," she said.
Dutton, the Australian immigration minister, said he understood that people wanted every refugee released from detention.
"The fact is I have to make decisions to remove people as quickly as possible, as we have done with every child in detention, but it must be done in a way that we don't see boats and deaths at sea recommence," he said.
Last week The Guardian newspaper released thousands of leaked Australian government documents
, detailing reports of sexual assault, child abuse and self-harm attempts at the Nauru detention center.
In response to the documents, Amnesty International accused Australia of a "mass cover-up.
Seaborn told CNN the allegations in the report were only the tip of what was happening at Australia's detention centers.
"The government is accusing us of fabricating a lot of these incidents. I've been there, I've seen it, and it's true what happened," she said.
Seaborn said when she'd first gone to Nauru in 2013, she had met normal, friendly children who had dreams of a career or a new life in Australia.
"When we left, you wouldn't hear dreams or hopes anymore. They were very withdrawn; they were being verbally abused by security guards on a daily basis," she said.
Whenever she or her fellow workers would report sexual abuse or harassment, Seaborn said she saw little follow-up or any noticeable changes in the camp's operations.
"I've seen a child under 10 years old just fall down on the ground and scream and squirm and scratch her face until it was bleeding," she said. "Behavior like that is a level of anguish that is very hard to describe."
Australia defends policy as humanitarian
Despite reports of abuses at the country's offshore camps, Australian leaders have defended the policy as a humanitarian way to stop people drowning at sea.
Then-Prime Minister Tony Abbott
said he would stop refugees arriving by boat whether it was "by hook or by crook."
Between 2007 and 2013, the Australian government said at least 1,200 people lost their lives trying to make the journey over water.
In February, the Australian High Court
upheld the government's right to hold the asylum seekers.