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The Pukpuk treaty, named after the local word for crocodile, includes a mutual defence pact that commits either nation to helping the other in the event of an armed attack.
Albanese expected to have the deal, initiated by PNG, signed when he visited Port Moresby in September.
However, PNG Prime Minister James Marape instead signed a joint communique after failing to get cabinet approval as planned, with many ministers reportedly back in their remote districts to celebrate the 50th anniversary of their country’s independence.
The PNG cabinet approved the pact on Wednesday by “an absolute majority”, according to The Australian, with an announcement by Marape expected imminently.
Albanese welcomed the decision and said he would sign the treaty with Marape soon.
“Our two nations are the closest of neighbours and the closest of friends, and this Treaty will elevate our relationship to a formal Alliance,” he said in a statement.
The treaty will elevate the countries’ relationship to an alliance, allow PNG nationals to serve in Australia’s defence force, and impose mutual support obligations if either country comes under attack.
PNG defence minister Billy Joseph reaffirmed the government’s commitment to securing the nation’s “independence, sovereignty and territorial integrity” in a post on social media.
“Peace must be achieved through strength. No nation must be at its knees begging for mercy when it comes to sovereignty,” he wrote on Facebook.
“Military strength is achieved through conscious investment in our defence forces balanced by our strategic security alliances.”
The Albanese government has praised the development, which has bipartisan support in Canberra.
“It puts our relationship with PNG on the same level as we have with the United States and New Zealand and builds on the already strong bonds between our defence forces, our economies and our people,” a government spokesperson said in a statement.
SBS News understands the treaty will come into effect by the end of the year.
It is a win for the prime minister in a security showdown with China, after Albanese left the Pacific empty-handed twice in as many weeks.
It is likely the deal will be viewed with a more cynical eye across the Pacific, with many nations not well-disposed to the militarisation of the region.
He is also pursuing a security treaty with Fiji, one of just three Pacific nations to have a defence force, along with PNG and Tonga.
— With additional reporting by the Australian Associated Press
