The so-called “sheep of shame” are currently being offloaded in the country, after a number of countries refused them because of fears the beasts were suffering scabby-mouth disease.
An Australian government spokesman described the sheep as a “gift”.
He said Canberra would provide Eritrea with some feed for the animals as well as aid to meet the costs of transport and slaughter.
The sheep have been at sea since 6 August, after leaving the Australian port of Fremantle bound for Saudi Arabia.
After Saudi authorities in Jeddah said some of the animals were diseased and refused them, the ship trawled around the region looking for someone to take the beasts.
Animal rights groups around the world were up in arms over the animals’ plight and said the sheep should have been slaughtered rather than remain stuck on the ship.
More than 5000 died during the voyage.
The animals were on their way to Australia's Cocos islands when Eritrea agreed to accept them.