A federal court has ruled that a baby born in Australia to an asylum seeker is not entitled to a refugee visa.
Ferouz Myuddin, who is 11 months old, was born in Brisbane when his mother was transferred to hospital from a refugee detention centre on Nauru.
A judge backed the government's earlier ruling that the baby was an "unauthorised maritime arrival" so could not claim refugee status.
Lawyers said he and 100 similar babies could now be sent to Nauru.
The hearing comes as the federal government considers amending the Migration Act to retrospectively declare all babies born to asylum seekers who arrive by boat as unauthorised maritime arrivals, irrespective of whether they were born on Australian soil.
If the amendments are passed, babies born to asylum seeker parents in Australia will have no right to apply for a permanent protection visa and should be transferred offshore.
Ferouz's family are Muslim Rohingyas who said they fled to Myanmar (also known as Burma) to escape persecution.
They landed on Australian territory in September last year and were taken to the off-shore processing centre in Nauru. Ferouz was born prematurely after his mother was taken to hospital in Brisbane because of concerns over her pregnancy.
Immigration Minister Scott Morrison had previously denied Ferouz a protection visa - which allows refugees to live permanently in Australia - on the basis that he had arrived on Australian territory by sea illegally.
Australia and asylum
- Asylum seekers - mainly from Afghanistan, Sri Lanka, Iraq and Iran - travel to Australia's Christmas Island by boat from Indonesia
- The number of boats rose sharply in 2012 and early 2013. Scores of people have died making the journey
- To stop the influx, the government has adopted hard-line measures intended as a deterrent
- Everyone who arrives is detained. Under a new policy, they are processed in Nauru and Papua New Guinea. Those found to be refugees will be resettled in PNG, Nauru or Cambodia
- Tony Abbot's government has also adopted a policy of tow-backs, or turning boats around
- Rights groups and the UN have voiced serious concerns about the policies and accuse Australia of shirking international obligations
His parents then appealed to the Federal Court but after examining how the family had entered Australia, Judge Michael Jarrett backed the government view.
He said the rule was intended to discourage people smugglers.
Lawyer Murray Watt said he was advising the Myuddin family, currently staying in a detention centre in Darwin, to appeal.
"This is a ludicrous decision given he was born here in Brisbane's Mater Hospital and he even has a Queensland birth certificate," ABC News quoted him as saying.
He said his firm - which is representing the families of 100 babies born in Australia to asylum seekers who arrived by boat - would be seeking assurance from the government that the families will not be moved to Nauru until the appeal is heard.
Mr Morrison welcomed the ruling, saying it has "always been the intention of successive governments that children born to illegal maritime arrivals, are taken to have the same status as their parents," ABC News reports.
Ferouz's family are also applying for citizenship for him as a "stateless" migrant, saying that as a Rohingya he is denied citizenship in Myanmar.
Children born in Australia to non-citizens or non-permanent residents can automatically get citizenship but only once they turn 10 and have spent most of their life in Australia.
Australia has been clamping down on asylum seekers, particularly those who arrive by boat.
Last month Australia signed a controversial deal with Cambodia to resettle refugees in the South East Asian nation. It also reintroduced temporary visas for refugees, which allow for the refugees to be sent home after a period of time if conditions in their home country are judged to have improved.
Australia's High Court is also hearing a separate challenge over 157 asylum seekers from Sri Lanka who set out from southern India and were intercepted by Australia security in July.
They were held on a customs ship at sea for a month, initially in secret, Their lawyers argued they were illegally detained, but government lawyers said the decision was made under existing laws.
The court on Wednesday said it was reserving its decision, with a ruling not expected for some time.