A treaty between Australia and East Timor covering the Greater Sunrise liquefied natural gas development is at risk, according to a report in The Australian, with East Timor threatening to cancel the treaty unless the Woodside Petroleum Ltd-led joint venture agrees to local processing.

Chief petroleum negotiator Francisco da Costa Monteiro told the newspaper East Timor would consider terminating the treaty if a dispute over the project's floating processing plant remained unresolved.

"Any treaty must ensure the two sides are happy, but at the moment Timor Leste is not happy," Mr Monteiro is quoted as saying.

East Timor currently receives a 90:10 royalty split in the Joint Petroleum Development Area, which covers 20 per cent of the Sunrise project.

Overturning the treaty would lead to fresh negotiations and a reopening of a long-standing boundary dispute over the area which is currently frozen by the treaty until 2057, according to the report.