"There is capacity but we're talking with the PNG Government about what options are available in PNG and we'll continue those discussions with them," Mr Dutton told Sky News this morning.
Prime Minister Peter O'Neill yesterday announced the centre would close after the Supreme Court's ruling on Tuesday, saying he would "immediately ask the Australian Government to make alternative arrangements for the asylum seekers".
PNG's High Commissioner to Australia Charles Lepani said there would be meetings in Canberra about the issue next week.
"We will talk with our Australian counterparts, which will be as early as next week with officials meeting in Canberra to discuss plans to close the facility," he said.
Meanwhile, locals are concerned about their future as the centre is the island's largest employer, with many coming from outlying islands or other parts of Papua New Guinea, and it is a major customer for local businesses.
"I think it's a definite blow," resident Garry Korup said.
"We ordinary people of the island haven't experienced such cash flow from an impact project since 1975.
"However, now that it's closed we'd like the Government to have alternatives. How do we go on to make a living?"
Many residents of Manus Island were initially unhappy with the decision to reopen the centre, and were angry at Australia for sending people it did not want to PNG.
But some of the Australian aid packages from the regional processing deal did filter through to Manus.
Detention centre improved facilities in town
The main town of Lorengau got a new market and the island's main road is being upgraded.
Mr Korup said that changed people's perceptions of the detention centre.
"I think the impact of the project has given us a few hopes, like the sealing of a stretch of road, we have a new market, we get constant assistance to our general hospital here," he said.
"The Government will have to look for alternatives, definitely."
Mr O'Neill acknowledged local concerns about the centre's closure and said the Government would work with Australia to minimise the damage to workers and businesses.
It is not yet known when the centre will close, and although Mr O'Neill said he would immediately ask Australia to make alternate arrangements, it is not clear what will happen to the 850 men on Manus Island.
Afghan refugee Egris Hussain said they could not stay in PNG, where they do not believe they will be safe.
"Because we don't have security and we don't have anything. Because always we are under pressure," he said.
Those men who have been found to be refugees are being told they could still be resettled in PNG, regardless of the closure of the detention centre.
By Papua New Guinea correspondent Eric Tlozek, staff