The main bone of contention is the Woodside operated Laminaria-Corallina oil field, one of Australia's largest at 50,000bopd, which lies even closer to East Timor than the newly opened Bayu-Undan gas field, where Australia has agreed to give the Timorese 90% of royalties under an interim agreement.

East Timorese Prime Minister Mari Alkatiri said the Australian Government has already drawn $1.7 billion from Laminaria-Corallina.

Alkatiri has sought the suspension of production from the field and is outraged that the Australian government has granted new exploration leases in the area despite signing an agreement to cease such actions until the issue of overlapping claims is resolved.

Not surprisingly Australian Foreign Affairs Minister Alexander Downer claims that Australia is operating within its rights in the area under international law.

Dr Alkatiri told Melbourne's 'The Age' newspaper that East Timor had been pressing its claims to Laminaria-Corallina and the smaller nearby Buffalo field, operated by BHP Billiton, since the two countries agreed to begin negotiations.

"We've made it very clear, but Australia keeps exploiting the resources there... even though they have recognised there are overlapping claims," he said.

"These two countries have to work together," Dr Alkatiri said. "We share the same ocean, the same regional interests and we have to work together. The way to do it is to understand each other and respect each other."