Both the National Capital Authority and the ACT Government have given the go-ahead for the SIEV X memorial to be sited on the lakeshore at Weston Park.
It will comprise a snaking line of 300 painted timber poles, made by schools, churches and community groups around the country, to commemorate the SIEV X victims.
The 353 people, mostly Iraqi mothers and their children, drowned when their overcrowded refugee boat sank en-route to Christmas Island from Indonesia in October 2001.
The loss of the boat, code-named Suspected Illegal Entry Vessel X, or SIEV X, led to a furious political row over the extent of the Australian Navy's knowledge of the sinking and the Howard Government's policies on asylum-seekers.
Psychologist Steve Biddulph and artist Beth Gibbing, both of Tasmania, have been lobbying government bodies for four years to get approval for the memorial.
An attempt to erect a temporary memorial was scuppered last year by the authority amid accusations of political interference by the Federal Government.
Mr Biddulph told the Sunday Canberra Times that the memorial would be in place for six weeks.
"This memorial tells the world that Australia cares and is not just defined by fear and greed," he said.
NCA spokesman John Thistleton said the authority's opposition to the memorial had never been political but had been based on the lack of permission from the land owners, the ACT Government.
Mr Thistleton said the SIEV X memorial project, which was supported by Chief Minister Jon Stanhope, had received the territory's backing before applying to the authority.
For a permanent memorial to be erected the NCA had to agree the monument had cultural significance to Australia, and represented the nation's unique heritage and background.
But a cross-party committee of federal parliamentarians, chaired by the Prime Minister, would have the final say."This last hurdle does not inspire confidence. There are unanswered questions about SIEV X that should be the subject of a forensic inquiry in the future.