Locals say a small wooden boat filled with asylum seekers has made it to within 500 metres of the Cocos Islands.
News of the boat's arrival came as Immigration Minister Peter Dutton said the government would close 17 immigration detention centres, saying: "We don't want to see new boat arrivals, and we absolutely are determined that we are not going to see men, women and children drowning at sea ever again in this country." 
On Tuesday afternoon, the ABC's Hack program broke the news a small boat was intercepted close to the Australian territory in rough weather, carrying an estimated 12 asylum seekers who one local identified as being Sri Lankans.
The program said the boat approached the Indian Ocean archipelago, about halfway between Australia and Sri Lanka, on Monday morning.
Local man Awie Rasa said he saw the vessel approaching the main lagoon between Home Island and West Island about 10.45am, local time.
"It's moving pretty fast, moving 12-15 knots," he told the ABC.
"It's heading towards Home Island ... the customs [officers] on the jetty are running up and down and getting their tenders into the water. I heard it didn't reach Home Island, just [anchored] about 500 metres away."
He believed the boat was a Sri Lankan vessel carrying about 12 men.
Another man told the ABC that Australian Federal Police officers intercepted the boat and escorted it to a mooring, from where members of the Australian Border Force took them to a vessel.
"We've had significant presences between Navy and Customs guys for many months," the man said.
"They come, they go, they disappear for a few days and come back.
"As far as vessels reaching the lagoon and getting inside the lagoon - that's certainly the closest one that's got in for some time."
Another man, who did not want to be identified, told Fairfax Media that Australian officials spent about an hour speeding between the boat and the Ocean Protector customs ship, about lunchtime.
It is not clear where the men were taken.
A spokesman for the Department of Immigration and Border Protection referred questions about the boat to Mr Dutton's office.
A spokeswoman for the minister said she would "not comment on operational matters".
The asylum route to the Cocos Islands opened up in earnest in 2012, when Sri Lanka's senior envoy in Canberra confirmed his government had stopped a boat carrying more than 110 people bound for Australia via the Indian Ocean.
Before this, people-smuggling syndicates had not historically targeted Cocos Islands, preferring to send boats to Australian territory closer to Indonesia - either Christmas Island, south of Java, or Ashmore Reef off West Timor.
The distance between Ashmore Reef and the Cocos Islands is more than 4000 kilometres, a massive expanse to patrol.
News of the boat came after Mr Dutton blamed refugee advocates for stoking unrest in the offshore processing centres at Nauru and Manus Island - two refugees set themselves alight in less than a week.
One man, 23-year-old Omid Masoumali, died two days later, and mobile phone footage taken on Nauru had been released, showing him screaming as flames engulfed his torso.