Steve Lewis and Nigel Wilson – The Howard Government is threatening to suspend talks with East Timor over control of billions of dollars worth of oil and gas reserves in the Timor Sea until after the election, following remarks by Mark Latham that a Labor government would consider restarting negotiations.

Senior government ministers believe the Opposition Leader has undermined Australia's negotiating position with the impoverished nation as talks enter a crucial phase.

Mr Latham this week delivered a strong signal a Labor government would begin with a clean slate and negotiate a more favourable outcome for East Timor.

"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," he said on Wednesday.

There is now a strong possibility talks scheduled to be held in Canberra in September will be deferred.

However, suspending talks on a maritime boundary between Australia and East Timor would almost certainly see the collapse of the $5billion Great Sunrise gas project in the Timor Sea.

East Timor's Minister for External Relations, Jose Ramos Horta, said yesterday Foreign Minister Alexander Downer had raised the possibility of postponing talks.

"We are pleased with constructive and positive statements coming out of the Labor Party and other opposition parties in Australia," Mr Ramos Horta said. "But we respect the government of the day and continue to negotiate in good faith."

Mr Latham's comments have incensed the Government, with Mr Downer believing Mr Latham has seriously blundered on another foreign policy matter. "This backflip now has serious implications for the negotiations which are currently at a very sensitive stage," a spokesman for Mr Downer said.

A spokesman for Mr Latham last night downplayed the significance of the remarks: "Mr Latham was stating the obvious, that as an Opposition we don't know the content of negotiations. "Of course, you would come into government and negotiate in good faith," the spokesman said, adding that Mr Downer was engaging in his "usual mischief".

One of the world's poorest nations, East Timor has launched an international campaign claiming Australia is being unfair by insisting a maritime boundary between the two countries should be established at the edge of the continental shelf, which in some places is only 80km from the East Timor coast, rather than at the mid-point between the two countries about 200km further south.

The partners in Greater Sunrise, Woodside, ConocoPhillips, Shell and Osaka Gas, are trying to sign up customers in North Asia for billions of dollars worth of liquefied natural gas from the Sunrise reservoirs, which are needed before the project can proceed.

A project spokesman confirmed yesterday that without East Timorese ratification of the agreement by the end of the year, the project could not proceed.