United Nations troops searched yesterday near the East Timor border town of Balibo for suspected pro-Indonesia militia who shot and wounded an Australian peacekeeper.

Gunmen opened fire on two Australian soldiers on Friday, hitting one in the thigh. "Troops were sent to the area and are in the process of looking for the people responsible for the shooting," an Australian military spokesman said.

The wounded soldier, an army communications specialist who was not identified, is being treated in the UN military hospital in the East Timor capital Dili. Australian Army spokesman David Munro, speaking to ABC Radio from Dili, said: "He's doing fine. He's in a stable condition. And he's in good spirits."

Major Munro said the soldiers were driving back to their base after delivering water to a border settlement when 20 to 40 rounds were fired at them from an abandoned house about 2km south of Balibo. After being shot at from the abandoned house, one of the two Australian soldiers returned fire. It was not known if any of the attackers were hit. Balibo is not far from the border with Indonesian West Timor.

Major Munro said the incident – the first Australian contact with militia since October – was being investigated. "In a situation like this anything's possible. You have a hostile force near the border." The injured soldier, from the Queensland city of Toowoomba, is likely to be brought home.

Pro-Jakarta militias, who laid waste to East Timor when it voted last year to break from Indonesian rule, have had occasional clashes with UN peacekeepers in the territory. The militias are based in refugee camps in West Timor.

Two peacekeepers – a New Zealander and a Nepalese – have been killed. Several militia have also died in previous clashes. In September three UN aid officials were killed by militia.