Steve Lewis and Nigel Wilson – Relations between Australia and East Timor have deteriorated even as they signed a breakthrough agreement yesterday paving the way for billions of dollars in shared revenue.

John Howard was forced to deny claims he had sought to "blackmail" East Timor into fast-tracking the agreement amid concerns that a delay could jeopardise valuable gas contracts with Japan.

But last night, East Timor's Prime Minister, Mari Alkitiri, admitted Canberra had used heavyhanded tactics to ensure Dili signed the International Unitisation Agreement (IUA), which will facilitate development of the Greater Sunrise gas field, about 450km northwest of Darwin.

After months of haggling between Australia and East Timor, federal parliament finally passed into law the Timor Sea Treaty. The related IUA sets out the legal and financial terms once the gas fields are operational.

Under a deal previously negotiated, 90 per cent of profits from the Bayu Undan project will go to East Timor, with Australian interests taking 10 per cent. However, under the latest agreement the 90:10 split applies only to 20.1 per cent of the Greater Sunrise project, which is some years away from becoming operational.

Opposition parties hit out at the Government's handling of the issue. Greens senator Bob Brown accused Mr Howard of using blackmail during a phone call to Dr Alkitiri.

"The motive of the Prime Minister was to coerce East Timor in terms of resources and money through a threat to withdraw this legislation if [Dili] did not agree to signing the agreement," he said.

"It's absolutely wicked, this stealing of resources of the poorest country in the region by the richest country in the region and the oil corporations behind it. It's illegal ... and John Howard has withdrawn from the International Court of Justice because he knows it's illegal."

Last night, Dr Alkitiri told ABC television the Government had applied a "lot of pressure" that was "not helpful for the whole process".

But Mr Howard denied he had used strong-arm tactics. "My call to Dr Alkitiri, which was totally civil and cordial ... related solely to formal processes and not to any of the substance of the negotiated package", he told parliament.

Ratification of the treaty still leaves a number of hurdles before a $20 billion export liquefied natural gas contract is completed.

The Darwin area manager for Bayu Undan joint venture leader ConocoPhillips, Blair Murphy, said the hurdles included a formal tax arrangement with East Timor, a formal production sharing agreement between the joint venture and the East Timor and Australian governments, and approval of the design of the LNG plant in Darwin.