Lucy Williamson, Jakarta – The Constitutional Court in East Timor has ruled against the government in a key political battle.

The government, led by former independence fighter Xanana Gusmao, got parliament's approval earlier this year for a vastly increased national budget. It planned to dip into East Timor's oil savings by more than double the usual amount to pay for it.

But the court ruling now means this plan is in jeopardy, and the government faces growing opposition pressure.

The plan was always controversial – double the budget to pay for higher food and fuel costs. At the centre was a so-called stabilisation fund, which was due to suck up $240m (£160m) of extra oil money.

But the Constitutional Court ruled that the fund itself was not transparent enough, and that doubling the budget this year was illegal because the government had not given parliament a good enough reason for doing so.

Political battleground

East Timor's annual budget is carefully calculated each year to cream off from its oil money only what can be sustainably spent. To spend more than that, the government needs to show this is in the country's long-term interest, not just for immediate relief.

The government had argued this year's increase was partly to build infrastructure, and partly to guarantee East Timor's stability in a time of high global prices.

Xanana Gusmao has been pushing hard to get money spent and projects implemented, and it is now unclear how many of those commitments will be honoured under the new ruling.

The case was brought to the Constitutional Court by a group of parliamentarians, led by the main opposition party Fretilin.

This year's budget has become a major political battleground, with Fretilin members saying it highlights the lack of democracy in the country.

They're now waiting to see how the government responds. But neither side at the moment appears to be backing down, and if this row escalates, East Timor could face another political crisis.