Peter Lloyd, staff – East Timor's former president Jose Ramos-Horta says Australia would never have secured a seat on the United Nations Security Council had claims that it spied on its neighbours been known.

Australia is accused of bugging an East Timorese cabinet room in 2004 so it could listen in on senior ministers and officials negotiating a new oil and gas treaty. East Timor has taken the case to The Hague in an attempt to have the $40 billion deal it signed with Australia torn up.

Dr Ramos-Horta has told ABC Radio's AM program that Australia should not underestimate the damage it has done by allegedly spying on East Timor and Indonesia.

"It really undermines 10 years of a relationship and I don't know what Australia can do to restore confidence among East Timorese people and leaders," he said.

Dr Ramos-Horta now acts as a special peace and security envoy for the UN secretary-general. Last year, he helped lobby for Australia to win its seat on the UN Security Council.

But he says that had he known about the spying allegations, the outcome would have been disastrous for Australia.

"Had we known that Australia was spying on us and spying on our friends, the Indonesian president Susilo Bambang Yudhoyono and his wife, well if [that] news had transpired before the vote for the Security Council a year ago, I doubt Australia would have secured the seat," he said.

Australia accused of setting a bad example He says Prime Minister Tony Abbott needs to admit fault.

"Australia should be more sensitive and transparent because Australia likes to lecture Timor Leste and other countries about transparency, about integrity in public life," he said. "Well this has not been a very good example of transparency and honesty."

Dr Ramos-Horta says it would be understandable if Australia had spied on North Korea or China, who are "enemies of the West". But he is angry that Australia would spy on "friendly" countries like Indonesia and East Timor – who it helped to free in 1999.

"I hope Australia does not underestimate the anger, the disappointment that its spying, its espionage towards Indonesia and Timor Leste is causing," he said.

Meanwhile, East Timor is demanding the Federal Government return all material seized by ASIO during two raids in Canberra last week. Agents took a number of documents from the office of lawyer Bernard Collaery, who is acting for East Timor at The Hague.

The Department of Foreign Affairs has updated its travel advisory to East Timor after peaceful protests were held in the capital, Dili, over the last few days. DFAT says Australians travelling to East Timor should exercise a high degree of caution.