East Timor is reviving its attempt to nullify a multi-billion-dollar oil and gas treaty with Australia on the grounds Australia spied on Timorese officials during the treaty negotiations in 2004.

Foreign Minister Julie Bishop has described the move as disappointing and said the Government believed differences between the two nations were best resolved through negotiation and consultation.

East Timor has been seeking to have the treaty declared invalid in order to establish a permanent maritime boundary halfway between the two countries, which would put more of the Greater Sunrise oil and gas field within East Timor's border.

Last year East Timor agreed to put the arbitration on hold so the two nations could resolve the matter outside court.

In a statement released on Wednesday, East Timor's prime minister Rui Araujo said his country agreed to the six-month hiatus on the proviso the break would be used to produce a road map for talks on a permanent maritime boundary.

But he said that expectation "has not been met".

Ms Bishop had previously said an agreement to develop a plan for talks on a maritime boundary was never part of the deal to put the arbitration on hold.

But East Timor has agreed to drop a case it took to the International Court of Justice (ICJ) 18 months ago after the Australian Security Intelligence Organisation (ASIO) raided the Canberra office of its lawyer Bernard Collaery and seized material to be used in the arbitration case.

East Timor had been planning to use the material to support its allegation that Australia's overseas intelligence agency, the Australian Secret Intelligence Service (ASIS), spied on East Timor during the negotiations over the treaty governing the Greater Sunrise field.

The country has argued the alleged espionage gave Australia an unfair advantage in the talks and wants the agreement torn up.

ASIO also raided the home and seized the passport of a former ASIS officer, known as Witness K, who had been due to travel to The Hague as East Timor's star witness in the arbitration case.

Last month, Australia agreed to hand back the seized material and East Timor announced on Wednesday it would drop that action in the ICJ.

But East Timor is "reactivating" the underlying arbitration case to have the Greater Sunrise treaty — the Certain Maritime Arrangements in the Timor Sea — declared invalid.

Government spokesman Agio Pereira said East Timor's preference was "always to avoid legal confrontation and focus all our energy and resources on national development".

However, he said "it is the mandate of the government to defend the national interest".

"Timor-Leste is focusing on moving forward in its relationship with its neighbour to substantive dialogue to finalise a permanent maritime boundary on the principles of international law," Mr Pereira said.