The deal, reached in Brisbane, includes 12 Pacific Island nations and was eight years in the making.
"This agreement will drive economic growth and raise living standards in our region," Australian Trade Minister Steven Ciobo in a statement.
"Closer economic integration of the region with larger economies such as Australia and New Zealand is essential for sustainable economic growth in the Pacific. Australia will... continue to work to increase Pacific-wide trade, tourism and investment," he said.
The agreement covers goods, services and investment and includes tariff phase-out periods. It will also include a development package of more than US$55 million to help create jobs and boost export capacity in Pacific Island countries, New Zealand Trade Minister Todd McClay said.
The 12 Pacific Island nations participating in the deal are Cook Islands, Federated States of Micronesia, Nauru, Kiribati, Niue, Palau, Republic of Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.
The agreement will be signed in Tonga in June. - Reuters