PERTH (Reuters) - Australia has intercepted a boatload of Sri Lankan asylum seekers off the coast of Indonesia, handing back all but one to Sri Lankan authorities, who arrested them for breaching immigration laws.

The Sri Lankans are the first to be turned back in five months as Australia’s highest court hears a test case challenging the government’s right to intercept asylum seekers’ boats outside its territorial waters.

Australian border protection staff intercepted the vessel carrying 38 asylum seekers on November 15, and transferred the passengers to a Sri Lankan naval boat where their applications for refugee status were assessed, Immigration Minister Scott Morrison said on Saturday.

One passenger was accepted for further processing and 37 were returned to Sri Lankan authorities, Morrison said in a statement.

The individual will go to one of the offshore processing camps the government runs in Papua New Guinea and the tiny South Pacific nation of Nauru for further processing, he added.

The rest are being held in custody and will face court, the Australian Broadcasting Corp. reported, quoting Sri Lanka’s superintendent Ajith Rohana.

"Investigations are being conducted by the anti-people smuggling unit of the Criminal Investigation Department," Rohana told the broadcaster.

The number of asylum seekers reaching Australia pales in comparison with other countries but it is a polarizing political issue, on which Prime Minister Tony Abbott campaigned heavily before last year's election win.

The United Nations High Commissioner for Refugees has intervened in the test case, reflecting the level of international concern over Australia’s treatment of asylum seekers on the high seas.

Australia received 16,000 applications for asylum last year, just under 0.5 percent of the 3.6 million lodged worldwide, UN figures show.

(Reporting by Morag MacKinnon; Editing by Clarence Fernandez)