High Court judge Kenneth Hayne, during a hearing of Australia's most senior court, gave the government and lawyers for the 157 Sri Lankan asylum seekers a week to prepare their cases for further consideration.
The asylum seekers were moved to Australia's offshore detention centre on the tiny South Pacific island nation of Nauru when they declined to speak with Indian officials about their refugee claims.
Immigration Minister Scott Morrison has said he is confident they are economic migrants and therefore are not entitled to asylum.
Hayne, hearing a renewed application from lawyers for the asylum seekers, said the case raised serious questions about how far Australian power extends.
"I observe the act is a federal act, seeking to apply beyond Australian territorial waters," he said. "It raises issues of a kind I believe have not been a matter for determination in this country, or elsewhere."
Ron Merkel, the lawyer for the asylum seekers, said the principles of the case remained despite the new location of the group. Lawyers for the government, meanwhile, asked for more time to prepare their revised case.
Hayne ruled that both sides must be prepared to present an outline of their case next week before consideration could be made on whether a full trial should proceed.
Australia already has offshore processing centres on Nauru and Papua New Guinea and in April agreed a deal with Cambodia for that southeast Asian nations to take in people intercepted by boat.
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