A new analysis of data shows the plane is probably in the southern end of the Indian Ocean search zone, where the operation will now be focused.
MH370 was en route from Kuala Lumpur to Beijing when it disappeared in March 2014 with 239 people on board.
Deputy PM Warren Truss said officials were "optimistic" it would be found.
But he said the search operation was likely to end by June 2016.
Meanwhile, Assistant Minister for Defence Darren Chester told reporters: "We have a high level of confidence that we are searching in the right area."
The Australian-led search has been combing a 120,000 sq km area of seabed about 2,000km off the coast of Perth, using underwater drones and sonar equipment deployed from specialist ships.
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The Joint Agency Coordination Centre (JACC), which is in charge of the search, says more than 75,000 sq km have been searched so far with no trace seen of the plane.
Part of an aircraft wing, known as a flaperon, was found on Reunion Island in July, roughly 4,000km from the search zone.
Although tests in France confirmed it had come from MH370, officials said it had been carried there by the ocean currents so did not affect their search plans.
In its technical report issued on Thursday, the Australian Defence Science and Technology Group said a "comprehensive analysis of the available data" showed that as previously thought, MH370 had almost certainly gone down in the southern stretch of the existing search area.
The JACC said the report "affirms the focus of search efforts to date", and that it was now focusing on a shortened but slightly widened section of ocean.
At a press conference in Canberra, Mr Truss said he remained "hopeful, indeed optimistic, that we will still locate the aircraft" and that the report gave "real encouragement".
The entire operation is expected to cost approximately A$180m ($131m; Â£88m).
Australian officials say they are confident they are searching the right area for Malaysia Airlines flight MH370.