Canberra – East Timor's economic future would be given more weight in talks over oil and gas royalties if Labor was elected, Opposition Leader Mark Latham said today.

Mr Latham today moved to distance Labor from the government on the issue of royalties from the multi-billion dollar Timor Sea oil and gas reserves, which are currently the subject of sensitive talks between Australia and the fledgling nation. He said the federal government was failing to negotiate in good faith and a Labor government would restart talks.

"Our starting point is to recognise that if East Timor goes broke that's bad for Australia," Mr Latham told Lismore radio 2LM. "We don't want a failed state on our doorstep. "We have an Australian interest in the viability of East Timor so I think we've got to conduct these negotiations in good faith.

"If we come into government, I think we'll have to start again because, from what I can gather, there's been a lot of bad blood across the negotiating table and you never get it right in these sensitive areas unless you're there doing things in good faith."

A spokesman for Foreign Affairs Minister Alexander Downer said today Mr Latham's promise ended a period of bipartisan support for the negotiation process. "This is a dramatic change in Labor's position," the spokesman said. "It has serious implications for what has been a delicate negotiation process."

The spokesman said the government would discuss the implications of the move with the East Timorese.

The next round of formal talks is scheduled for mid-September in Canberra.

Australian Democrats senator Natasha Stott Despoja said she was surprised at the move, given that Labor supported laws ratifying the Timor Sea Treaty and the Greater Sunrise Unitisation Agreement. The agreement, which is yet to receive East Timor parliament backing, hands Australia more than 80 per cent of known oil and gas deposits.

"I'm glad they now understand that a strong Timor Leste (East Timor) is crucial for the region and is in Australia's national interest, which is why they should never have supported hastily prepared and unfair legislation," Senator Stott Despoja said. "I challenge Labor to back up its commitment to negotiate in good faith by undertaking to resubmit to the International Court of Justice."

Greens senator Bob Brown said the move would boost Australia's standing in East Timor, which had taken a battering since the laws were passed. "Effectively the Howard Government wants to steal East Timor's resource," he said.