East Timor has told Australia it wants to rip up a 2006 treaty that carves up future revenue from the Greater Sunrise oil and gas reserve in the Timor Sea.
The split of $50 billion worth of oil and gas revenue between East Timor and Australia will need to be reviewed as both governments have indicated they will tear up a 2006 treaty on the Greater Sunrise reserve in the Timor Sea.
For years Dili had sought to renegotiate the agreement following claims Australian spies had bugged East Timor's leaders during 2004 negotiations.
The reserve contains gas and oil worth an estimated $50 billion, but how the share of the spoils will be divided up must now be revisited.
The two governments have announced in a joint statement East Timor will soon formally inform Australia it wants to terminate the treaty, which will cease three months from the date of notification.
The treaty split future revenue of Greater Sunrise reserve 50/50 between East Timor and Australia and put a 50-year moratorium on a permanent maritime boundary.
The two governments are taking part in conciliation in The Hague over the ongoing maritime boundary dispute.
Both countries insist they are committed to negotiate a permanent border under the auspices of the conciliation commission.
"The governments of Australia and Timor-Leste remain committed to their close relationship and continue to work together on shared economic, development and regional interests," said the statement, released on Monday.
There will be confidential meetings held over the course of the year between the countries' representatives and the commission.
A separate 2002 treaty that established a joint petroleum development area and apportions 90 per cent to East Timor and 10 per cent to Australia remains in place.
Australian National University maritime law expert Don Rothwell casts doubt over whether the two countries can reach agreement on a permanent boundary.
"Some caution needs to be exercised in saying that there will ultimately be a permanent boundary concluded," he told AAP.
He said the negotiation of a permanent boundary would also have implications for Indonesia.
Labor's foreign affairs spokesman Penny Wong said the maritime boundary dispute had gone on too long.
"It's been damaging for Australia's interest as well as East Timor's," she told reporters in Adelaide.
Woodside, which wants to develop the Greater Sunrise fields, said it welcomed the commitment to negotiating a permanent maritime boundary.
"We look forward to an agreement that allows for the earliest commercialisation of the Greater Sunrise fields, which promise great benefits for all parties," a spokeswoman said in a statement to AAP.