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The agreement, which Albanese said made Australia Tuvalu's "partner of choice", covers climate change, security and human mobility.
"The Australia-Tuvalu Falepili union will be regarded as a significant day in which Australia acknowledged that we are part of the Pacific family," Albanese told a news conference in the Cook Islands on Friday where he is attending a meeting of Pacific leaders.
Australia will create a special visa for up to 280 Tuvaluans annually, 2.5% of the 11,200 population. Funds will also be provided for land reclamation in Tuvalu to expand land in capital Funafuti by about 6%.
In a nod to China's growing presence in the region, the agreement also requires the parties to consult before signing security or defence agreements with third parties.
Tuvalu is one of just 13 nations to maintain an official diplomatic relationship with Taiwan, as Beijing has made increasing inroads into the Pacific.
Australia will also provide security support if requested by Tuvalu, Albanese said.
While the full text of the agreement has not been released, the Sydney Morning Herald reported earlier on Friday that all 11,200 residents of Tuvalu would be offered refuge in Australia if climate change made the country uninhabitable.
The government press release following the treaty signing made no mention of mass climate asylum.
Tuvalu, a collection of nine low-lying islands mid-way between Australia and Hawaii, is one of the world's most at-risk countries from climate change and has long drawn international attention to the issue.
Earlier this year, Tuvalu appeared at legal hearings at an international court in Germany, seeking an advisory opinion on the obligations of countries to combat climate change.
Former Tuvalu Foreign Minister Simon Kofe told the COP27 climate summit last year Tuvalu plans to build a digital version of itself, replicating islands and landmarks and preserving its history and culture.