Australia will help fund a new police training centre in Papua New Guinea and mandate consultation if either nation is attacked in a bid to boost regional security.
Prime Minister Anthony Albanese and his PNG counterpart James Marape inked a legally binding agreement in Canberra on Thursday.
Australia will contribute $200 million to PNG's security, more than half of which will be used for policing infrastructure including a new centre in Port Moresby where officers from around the Pacific can also be trained.
The centre will help recruit and train about 1000 more officers as the PNG government works to almost double policing numbers to 10,000 by 2027.
There is currently only one police officer for each 3000 citizens.
Serving Australian police officers will not add to boots on the ground, but positions are being opened up for retired service people and others with expertise in areas such as investigations willing to serve under the PNG constabulary.
The security pact also mandates the need for both countries to consult each other in the event of an armed attack or if the peace and stability of either nation is threatened.
Australia and PNG were joint leaders in the region, Mr Marape told a joint press conference after the meeting.
"What happens up north of your borders has a deep shared effect, benefit, consequence on our region," he said.
Policing and domestic security had been identified as priority areas in the agreement, Mr Albanese said.
"It will make it easier for Australia to help PNG address internal security needs and for Australia and Papua New Guinea to support each other's security and the region's stability," he said.
Boosting the judicial system, including by recruiting more judges, and upgrading prisons were also flagged.
Australia had hoped to have the pact signed in the first half of the year but it was delayed after a backlash in PNG, when a similar agreement with the United States caused a domestic uproar about a loss of sovereignty.
Canberra has been looking to bolster its security arrangements in the Pacific after China signed a policing pact with the Solomon Islands.
There are concerns in Australia about China securing a foothold in the region.
The Australia-PNG agreement does not include any exclusive provisions, so Port Moresby can still enter other security arrangements it considers necessary.
But each country can also ask the other to share information regarding key security-related developments that are likely to affect the other nation.
PNG's signing of agreements with Australia and the US should not be seen as picking sides, as it didn't come at the expense of any other nation, Mr Marape said.
"Our major foreign policy of friends to all and enemies to none remains," he said.
Mr Marape will address the Australian parliament on February 8.
