Since then his government has negotiated a number of contracts with Australia which have been controversial.

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Ms Payne said Australia would continue to have a good relationship with the key Pacific nation, but, asked about offshore processing she said: "We'll obviously deal with those issues as they arise".

"I think it's premature to speculate on those. As we've seen in recent weeks, Papua New Guinea politics is historically and clearly currently very dynamic. You'd be a very brave person to predict outcomes at the moment."

One Australian contractor working on Manus Island told The Age and Sydney Morning Herald that their future was impossible to predict, and depended how profoundly power would shift in Papua New Guinea with Mr O'Neill's demise.

Ms Payne praised Mr O'Neill, saying he had played a pivotal role in strengthening Australia's partnership with PNG, which receives more than $500 million in aid from Australia each year.

She said she was confident the relationship would continue regardless of who leads Australia's "closest friend and closest neighbour" in the region.

"Obviously, these are matters for the Papua New Guinea parliament and political parties and we will work with the leadership as it is determined by them," she told ABC Radio National on Monday.

"And I'm sure that no matter who that is, that will be a continuing approach similar to the one that we've enjoyed in recent years."

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Mr O'Neill said as he resigned on Sunday that there was a clear "need for change". His announcement came after a number of government MPs joined the opposition on Friday, prompting claims that it had the numbers to form a majority in the country's restive parliament.

His pick as replacement Prime Minister, Sir Julius, is unlikely to be accepted by the opposition, though they have not yet proposed an alterative Prime Minister, according to website Business Advantage.

In an earlier no confidence motion, former Finance Minister James Marape was the proposed alternative prime minister, but that notice was withdrawn last week.

Parliament is due to sit on Tuesday.

The change of leadership comes as Prime Minister Scott Morrison tries to enact a "step-up" in Australian policy towards the Pacific. His first overseas trip since the election will be to the Solomon Islands, and on Sunday he lauded his "close friendship" with O'Neill as he announced a new minister for the Pacific, Alex Hawke.

China has been courting the resource-rich country with huge infrastructure investments and invitations to join the global Belt and Road Initiative, prompting a bout of strategic soul-searching in Canberra about whether Australia has paid sufficient attention to the region.

Last year, Australia and Mr O'Neill announced a multi-million dollar upgrade to the Lombrum naval base in what was seen as an attempt to counter China's rising influence.

Mr O'Neill has played both sides of the debate, courting investment and attention from both China and Australia, which provides about $500 million in aid annually to the country.

A change of government in Papua New Guinea means a number of these relationships and commitments will be thrown up in the air, though they have not been the key issues in the change in leadership.

The economy, including international loans, corruption, and alleged mismanagement of the royalties from a huge gas project have been more prominent in the criticisms of the outgoing Prime Minister.

Andrew Wilkins, the publishing director of Business Advantage, PNG’s leading business media outlet, said one of the key pressure points in PNG politics was how much benefit ordinary people received from the big resource projects.

With AAP