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East Timor has accused Australia of a crime and immoral actions in relation to a spying scandal that has erupted between the two countries.

Lateline on the Australian Broadcasting Corporation (ABC) reported new details about bugging of a cabinet office in East Timor during negotiations over an estimated $40 billion oil and gas treaty.

Despite attempts by the Australian government of Julia Gillard to mediate the damage, reports surfaced from East Timorese president Xanana Gusmao alleging that the representative sent to deal with the damage was actually involved in the spying operation.

Prime minister Rui Maria de Araujo said "Having that as an advantage for you to negotiate something that is a matter of death and life for a small country, I think it's - at least morally - it's a crime."

Mr Gusmao said it was a criminal act.

"Australia would not allow it. Under the Security Act it will be a criminal act? No? For us we believe it should be considered like this," he said.

The resources minister of East Timor Alfredo Pires said Australia would not stand for such behavior from another state, adding "If I was to do a similar thing in Canberra I think I would be behind bars for a long time.”

The recent conflict dates back to 1989, when Australia and Indonesia signed the Timor Gap Treaty, effectively keeping East Timor under Indonesian occupation. In that treaty, East Timor’s requests for an ocean border went ignored, and Indonesia and Australia were afforded the East Timor Gap’s wealth as colonial powers will.

East Timor gained independence in 2002 at the Timor Sea Treaty, but still never received a maritime border. The request of East Timor remained that a border should exist halfway between the country and Australia, which would keep the Greater Sunrise oil and gas field in East Timor territory. The two countries eventually agreed that the profits from the oil and gas fields would be split between both of them.

In 2004, Australian agents bugged the Palace of Government in Dili, East Timor, pretending to be workers with an aid project. Their intentions were to spy on East Timor former prime minister Mari Alkatiri, in order to gain an advantage for Australia in negotiations over the oil and gas fields.

The fields are worth approximately $40 billion, yet East Timor remains in extreme poverty. According to the Australian Broadcasting Company, “East Timor is one of the poorest nations in the region; 50 per cent of children under five are malnourished and only half the homes have electricity.”

After accusations first came to light of Australia’s spying, both former prime ministers Julia Gillard and Stephen Abbott ignored the scandal.

East Timor is now recommencing action against Australia in the Permanent Court of Arbitration.