CANBERRA, Australia (AP) - Children are being held in a crowded detention camp for asylum seekers on a remote Indian Ocean island, contrary to government policy that they should be housed elsewhere, a state rights commission reported Friday.

After allegations in recent years from rights groups that children were being emotionally scarred by Australia holding them in prison-like immigration detention centers, the government has ruled that they should live with their families in community-based housing outside the fences.

"For many children on Christmas Island, that is not the case," the government’s Human Rights Commission reported Friday, referring to an Australian territory near Indonesia where applications of refugees who have arrived in Australian waters by boat are processed.

On a recent visit, the commission found that only 29 of 82 children asylum seekers on Christmas Island were living in community accommodation. The remaining 53 were held in a low-security camp which they were not allowed to leave unescorted.

It described the camp as "claustrophic."

Prime Minister Kevin Rudd’s government is already under fire for relaxing restrictions on asylum applications, which the political opposition alleges has led to a flood of migrants.

On Friday, the navy intercepted the third boat of asylum seekers in three days.

Immigration Minister Chris Evans rejected the commission’s criticism.

He said the camp in question did not fit the government’s definition of an immigration detention center. There are two such high-security facilities on Christmas Island, and children were not being held inside them, he said.

The commission also recommended that the government stop shipping asylum seekers to Christmas Island for their refugee applications to be processed. Failing that, the government should give them more access to the Australian legal system. Evens rejected both recommendations