Under the changes recommended on Friday at the party's national conference, children should be released from detention and asylum seekers would find it easier to win temporary protection visas.
But the boat people, as most of the asylum seekers are known, would still face mandatory detention in isolated camps.
In recommending only modest changes, Labor leader Mark Latham won a major victory over the leftists within the party, who wanted more radical changes to humanise Australia's stringent anti-asylum policies.
"I am proud of our asylum seeker policy and I am going to talk about it, not because it's popular, but because it's right," Latham said.
Labor's immigration spokesman Stephen Smith said the party wanted to keep mandatory detention but to make it more humane.
"I am proud of our asylum seeker policy and I am going to talk about it, not because it's popular, but because it's right"
"We want to see speedy processing with procedural fairness and we want to see mandatory detention maintained in a humane way, not in a punitive way, managed by commonwealth officers on commonwealth territories," Smith said.
At present, between 1,200 and 1,300 people were in detention in Australia, about half of whom had come to the country illegally by boat, he said.
Smith said Labor's new refugee policy was a substantial change on its previous stance.
"It’s a policy of integrity, it is a policy which protects and defends the national interest, but which treats people fairly," he said.
Many within the party had wanted an end to mandatory detention in isolated camps for the asylum seekers.
Though Australia's harsh measures against illegal immigrants gives the country bad publicity abroad, most Australians tend to support them.