Bangkok: Australia and East Timor have reached agreement on developing billions of dollars of oil and gas reserves in the Timor Sea, ending years of bitter disagreement.

A deal has been reached on a maritime boundary as well as sharing arrangements for the $US50 billion Greater Sunrise oil and gas field.

At least 10,000 people protest in Dili last year against Australia's stance on the oil and gas meridian line in the Timor Sea. Credit:Wayne Lovell/Timor Photography

Foreign Minister Julie Bishop hailed the agreement struck in confidential talks at The Hague as a "landmark day" in relations between the two countries.

Xanana Gusmao, the hero of East Timor's struggle for independence and leader of his country's delegation in the talks, described it as an "historic agreement that marks the beginning of a new era in Timor-Leste's [East Timor's] friendship with Australia".