Australia has warned that East Timor could lose some revenue if it insists on drawing a permanent seabed boundary in the Timor Sea. Foreign Minister Alexander Downer issued the caution as boundary negotiations resumed in Dili today.

The talks focus on oil and gas reserves outside the joint development zone controlled by East Timor and Australia. Mr Downer says new boundaries could mean East Timor will get less revenue than it does now from the joint zone.

"It's sometimes presented to the Australian public that if we drew a median line between Australia and East Timor, East Timor would get more than they get now – that's not right," he said.

"What we have at the moment is what's called a joint development area between Australia and East Timor and we give East Timor 90 per cent of the revenue from that. If you drew a median line, they may end up with a good deal less than 90 per cent."

Mr Downer says boundary negotiations with East Timor cannot be allowed to unravel existing sea boundaries with Indonesia and other neighbours.

'Honour on all sides'

"We're talking this issue through because what Australia doesn't want is to unravel all of our maritime boundaries which have been laboriously negotiated over many years with all of our neighbours," he said.

"If we can find a suitable settlement that keeps our principles intact but ensures East Timor gets a steady flow of revenue then there should be honour on all sides."

Australia has told East Timor the decision on a permanent boundary should be put on hold for 50 to 100 years while oil and gas reserves are developed.

But Paddy Kenneally from the Timor Sea Justice Campaign says the Australian Government is trying to scare the Timorese into signing an agreement or risk losing revenue.

"The Timorese ought to stick solidly for a justified seabed boundary in a median strip between the two countries," Mr Kenneally said. "If they agree to anything else, they'll be living off the crumbs of the rich Australian table until the oil runs out."

Labor's foreign affairs spokesman, Kevin Rudd, says there needs to be a just settlement for East Timor. "The key thing here is what is fair for Australia and what is fair for East Timor and we need to ensure that this small fledgling democracy has a secure long-term source of revenue so that it can carve out its future free of Australian aid dependency," he said.