Jakarta – Thousands of illegal Indonesian workers and their families are living in dire conditions in camps near the country's border with Malaysia and one relief worker said a few are selling their babies to raise cash.

Activists said nearly 70 workers and their dependents have died in the past several weeks from illness in the refugee camps around Indonesia's Nunukan town near Malaysia's Sabah state on Borneo island, after they fled tough new Malaysian labour laws. Officials put the death toll at just 28, however.

"There is baby trade in exchange for money here. Mothers are selling their babies from 300,000 rupiahs to one million. I've had three cases this week," said relief worker Palupi from the Humanitarian Volunteers' Network. These figures are equivalent to a range of $34 to $112.

"They need the money to be able to go back to Malaysia," she told Reuters by phone from Nunukan, some 1,700 km northeast of Jakarta. Kuala Lumpur's campaign to expel illegal workers began four months ago at a time when Indonesian workers were demonstrating against their working conditions and amid public unhappiness about rising crime blamed on illegal migrants.

Malaysia gave illegal workers until August 1 to leave or face penalties of six months' jail and up to six strokes of the cane.

The threat of the cane has prompted tens of thousands of Indonesian illegal workers to cram border checkpoints such as Nunukan, where officials say around 25,000 people are living in tents and run-down buildings. Aid workers say hundreds more arrive each day.

Officials said the media has exaggerated the situation. "The situation in Nunukan isn't like what the media reported. From our report since July the death toll is 28 [including] a premature-born baby who died last night," said Mardjono, head of a manpower ministry team that went to Nunukan over the weekend. The deaths come from illnesses related to a lack of clean water, sanitation and food.

The illegal worker issue has enraged politicians in Indonesia and underscored some latent tensions with its neighbour. Impoverished Indonesia has long supplied affluent Malaysia with workers for its construction and manufacturing sectors.

Some 70,000 Philippine workers have been expelled by Malaysia as well, but unlike Indonesia, Manila has managed to secure a temporary halt to the deportations while diplomats try to work out a more orderly repatriation.