Dennis Shanahan – Australia has pressured the leadership of the fledgling state of East Timor, warning it that more public attacks over oil rights could severely damage the relationship.

In the fourth warning in six months to East Timor President Xanana Gusmao and Prime Minister Mari Alkatiri, a secret envoy travelled to the newly independent nation to pass on Australia's displeasure.

It was the strongest warning so far that the running dispute over billions of dollars in oil rights could spill over into Australia's broader relationship.

Australia supplies financial aid and has peacekeeping troops in East Timor. It led the UN-backed forces that gave the former Portuguese colony and Indonesian province independence in 2002.

East Timor is relying on revenue from oil production in the Timor Sea, in partnership with Australia, to fund its long-term economic development after the devastation of the battle for independence.

The oil rights, divided between fields near East Timor and the Australian continental shelf, are the subject of an acrimonious dispute that is souring Australian-East Timor relations.

East Timorese leaders have accused Australia of being "worse than Indonesia", stealing from East Timor, committing a "hostile act", being insulting over anti-corruption measures, ungenerous and behaving like a colonial power. There is a view forming among other countries supporting the emerging nation that Australia's popularity in East Timor and positive international recognition for helping independence are beginning to suffer because of the oil rights dispute.

Australia is insisting the borders along the Timor Gap, negotiated with Indonesia, must determine the oil rights. East Timor is challenging the boundaries and claims they should be moved towards East Timor to give it a greater share of the oil revenue.

East Timor claims it is losing about $1 million a day in revenue from oil taken in a disputed area of the Greater Sunrise field. Although Australia takes only 10 per cent of one field, and has agreed to East Timor taking 90 per cent, arrangements in other fields give Australia the greater share of revenue.

The latest warning by Canberra has been the most serious yet, suggesting that continued public attacks would harm the wider bilateral relationship.