Jakarta – The speed of Indonesia's change of heart over the future of East Timor, which could now become independent within months, has worried diplomats watching the troubled territory.

Officially other governments have welcomed President B.J. Habibie's statement Thursday that the former Portuguese colony of less than one million people could be independent by Janaury 1.

But UN Secretary General Kofi Annan and diplomats in Jakarta say major obstacles remain before East Timor's future can be decided. Australia is so worried about a new conflict erupting near its shores that Foreign Minister Alexander Downer has sought emergency talks with Habibie.

Indonesia, then under strongarm president Suharto, invaded East Timor in 1975 and annexed it a year later. The United Nations and most countries refused recognition, but for more than two decades Suharto kept a firm grip on the province.

Suharto fell last year and in less than a month, the Indonesian government has raised the possibility of independence, re-established tentative diplomatic relations with Portugal and moved East Timor rebel leader Xanana Gusmao out of prison.

Now Habibie says East Timor should be independent by January 1, 2000 so the government can concentrate on its other 26 provinces.

The speed of the U-turn, guided by Habibie, stunned diplomats in Jakarta – who have officially welcomed the new policy – the population of East Timor and the Indonesian government.

The foreign ministry and the powerful army were only consulted at the last minute, according to separate sources. This would explain, the sources said, the lack of coordination between some ministers and their contradictory statements.

The main reason for the change is that Indonesia's economy is on its knees. The government can hardly feed its 206 million people and is only surviving with massive international aid.

Indonesia has also faced international condemnation over human rights abuse and military repression over the past 24 years in East Timor, where most of the population still rejects the Indonesian presence.

According to well-placed sources, Habibie knew when he made his announcement Thursday that when US Secretary of State Madeleine Albright arrived in Jakarta in early March, East Timor would be top of the agenda.

But Indonesia's leaders now seemed resigned to giving up East Timor, and some even seem relieved. Dewi Fortuna Anwar, a foreign policy advisor to Habibie, described the territory that Portugal withdrew from as "a sick appendix which has to be removed."

Foreign Minister Ali Alatas had some blunt words for Jakarta-based ambassadors, according to one participant. "You wanted it, you got it, its all yours now," Alatas was quoted as saying.

Indonesia's sudden change has also complicated the United Nations' search for an accord between Indonesia and Portugal over East Timor. UN chief Annan cautioned following Habibie's comments that "major hurdles" remained ahead of a political settlement.

Annan noted that just-ended talks here between Portugal and Indonesia focusing on draft UN autonomy proposals had "gone very well, and have made some progress." But "we still have some major hurdles ahead. It will require major efforts by the international community either way," he added.

One western diplomat in Jakarta said Habibie's announcement had come "out of the blue" and added: "We have got to review everything now."

"What we need now is a solid process that can be protected against any other change of policy in Jakarta, such as a new government or a nationalist backlash," said the diplomat.

Foreign governments are also concerned that the small territory could descend into chaos and conflict between separatists and those who want East Timor to remain Indonesia's 27th province.