SYDNEY, Nov 8 (Reuters) - Australia on Sunday urged Sri Lanka, having defeated the Tamil Tigers in May, to now embrace political reform and reconciliation to stem the flow of asylum seekers leaving the country.

Foreign Minister Stephen Smith will meet his Sri Lankan counterpart Rohitha Bogollagama in Colombo on Monday amid a standoff in Indonesia involving 78 Tamil asylum seekers, who are refusing to leave an Australian vessel that rescued them last month. [ID:nJAK390979]

"I will reiterate Australia's view that having won the war, Sri Lanka now needs to win the peace through political reform and reconciliation," Smith said in a statement.

"Mr Bogollagama and I will discuss bilateral and regional cooperation on people smuggling and ways in which Australia will continue to assist Sri Lanka rebuild after decades of internal conflict."

The standoff in Indonesia involves an Australian customs vessel which rescued a group of boatpeople in Indonesian waters. It took them to the Indonesian port of Tanjung Pinang but the Sri Lankans have refused to leave the vessel.

On Friday Indonesia extended for another week a deadline for the ship to leave its waters.

The arrival in Australia of several boats carrying asylum seekers, many of them Sri Lankans displaced by the civil war, has ignited what is a hot-button political issue in Australia.

Prime Minister Kevin Rudd has had to defend his border security policy, which critics say has been softened and is attracting more boatpeople. [ID:nSYD481916]

Opinion polls show the popularity of Rudd's government has taken a tumble in the past few weeks as a result of its handling of the issue. [ID:nSYD501853]

Almost 300,000 civilians were forced from their homes and moved into the cramped camps in the north of Sri Lanka during the final months of Sri Lanka's 25-year-old civil war against separatist Tamil rebels which ended in May.

(Editing by Jeremy Laurence)

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