Australian Foreign Minister, Mr Alexander Downer, said the two sides completed negotiations last week for the treaty, which will direct the development of the huge gas fields in the Timor Sea and divide revenue between Australia and East Timor.

"These agreements will now provide the necessary legal and commercial certainty for the companies to exploit the tremendous resource potential of the Timor Sea," Mr Downer said.

Australia and East Timor began negotiating a new treaty in 1999 after pressure mounted to replace the existing treaty, which one dissident commentator described as "piratical". That treaty expires today.

The signing of the new Treaty represents a significant win for the East Timorese administration, who insisted commercial concerns such as the unitisation of the Greater Sunrise reservoir didn't need to be resolved beforehand.

Unitisation refers to the method of determining which parts of the reservoir are subject to East Timor taxes.

The Sunrise participants - Woodside, Phillips Petroleum, Shell and Osaka Gas - feared that unitisation might delay the development options for the reserves and pressed the Federal Government to have the unitisation agreement settled beforehand.

However the Government withdrew its demand, thus paving the way for today's signing.