East Timor is seeking to tear up a treaty on the sharing of oil and gas revenues with Australia because it says Australia spied on it during the negotiations.

East Timor has launched a process of arbitration to challenge a 2006 treaty which governs how proceeds are shared from oil and gas fields that straddle the joint development area between the two countries and the Australian continental shelf.

The developing country argues the treaty is invalid because Australia did not conduct 2004 negotiations in good faith. Specifically, East Timor alleges Australia conducted espionage.

In his 2007 book Shakedown: Aus-tralia's Grab for Timor Oil, Paul Cleary, a former Fairfax Media journalist who was part of East Timor's negotiating team, wrote that the country's then Prime Minister Mari Alkatiri was convinced the Australian Government was spying on them during negotiations in Canberra in September 2004. The East Timor delegation stopped holding meetings in their hotel, fearing rooms were bugged, and dumped their mobile phones because they suspected eavesdropping.

In a joint statement issued on Friday, Foreign Affairs Minister Bob Carr and Attorney General Mark Dreyfus said the spying allegations were not new, and it had been the position of successive Australian Governments to neither confirm nor deny them.