Coastal surveillance increased after the Tampa crisis
Officials say the refugees have been throwing children off the boat to force the navy to rescue them.
Personnel from HMAS Adelaide intercepted the boat, thought to contain some 300 mainly Iraqi refugees, as it entered Australian waters about 20km (12 miles) from Christmas Island on Saturday evening.
A party was sent aboard to see if help was required, but also to tell the captain and crew of stiff new penalties for anyone caught smuggling illegal immigrants into Australian territory.
The navy officers have been trying unsuccessfully to persuade the boat's crew to return to international waters.
Christmas Island lies about 1,500km (940 miles) west of the Australian mainland and 350km (220 miles) south of Indonesia.
Children
Immigration Minister Philip Ruddock said the fact that the children being thrown overboard were wearing lifejackets showed the action was premeditated.
"It would be unfortunate if the steps being taken by the passengers leads to a loss of life but we will do our best to ensure that doesn't happen," he said.
Last month, the Australian parliament brought in new laws aimed at halting the flow of asylum-seekers.
The new legislation reinforced Australia's authority to turn boat people away, and increased the penalties for anyone smuggling illegal immigrants.
Tampa
In August, Australia refused entry to more than 430 mostly Afghan asylum-seekers.
They were picked up by a Norwegian ship, the Tampa, and kept at sea off Christmas Island for more than a week.
Eventually, these and other boat people were transferred to New Zealand and the small island of Nauru for their applications for refugee status to be processed by the United Nations.
More than 9,000 illegal immigrants have sought entry to Australia over the past two years.
Prime Minister John Howard has seen a rise in popularity due to his tough stance over illegal immigrants.
He is seeking a third term in office at the polls on 10 November.