Malaysian Foreign Minister Syed Hamid Albar has stated that his country's original proposal in May was its best offer and that the ball is now in Brunei's court to decide the next course of action.

Malaysian Prime Minister Mahathir Mohamad conveyed this viewpoint to his Brunei counterpart, Sultan Hassanal Bolkiah, at a recent meeting between the two heads of state.

According to sources close to the Sultanate, the Malaysian offer was for a production-sharing agreement but Brunei's UK-based advisers have warned that such a pact may mean conceding territorial rights to Malaysia. However, Brunei lacks the muscle to back its claims and may lose out if it goes against its larger neighbour.

Exploration activities in the disputed area have been halted after the Malaysian navy earlier chased off a drilling team belonging to a consortium led by Total. The discovery of oil in the Malaysian Kikeh fields - that preliminary estimates say has recoverable reserves of between 400 million to 700 million barrels - has only made the situation worse.

Malaysia hopes to resolve the issue before Mahathir steps down from the Malaysian Premiership in October.