Timor-Leste’s ambassador to Australia said his country was “deeply disappointed” Australian intelligence agencies had resorted to raids against the tiny nation’s lawyer and star witness in the international hearing of spying allegations and thought “fair-minded” Australians would reject the explanation given by the attorney-general, George Brandis, as ridiculous.

The Canberra lawyer Bernard Collaery, who is representing Timor-Leste in an international arbitration hearing in the Hague, has argued the raids were a deliberate effort by the Australian government to disrupt the proceedings, in which Timor-Leste alleges that in 2004 Australia improperly spied on the Timorese during negotiations on an oil and gas treaty worth billions of dollars in order to extract a commercial benefit.

Timor Leste’s prime minister, Xanana Gusmao, issued a statement on Wednesday calling on the Australian prime minister, Tony Abbott, to explain himself and guarantee the safety of the witness – a former senior Australian Security Intelligence Service (Asis) officer allegedly directly involved in the bugging of the Timorese cabinet office during the sensitive negotiations of the Certain Maritime Arrangements in the Timor Sea (CMAT) treaty.

"The actions taken by the Australian government are counterproductive and uncooperative," Mr Gusmao said. "Raiding the premises of a legal representative of Timor-Leste and taking such aggressive action against a key witness is unconscionable and unacceptable conduct. It is behaviour that is not worthy of a close friend and neighbour or of a great nation like Australia."

Brandis confirmed he issued the warrants for the Asis raids, but denied they were intended to interfere in the case and said the matter was an issue of national security.

Timor-Leste’s ambassador to Australia, Abel Guterres, rejected that assertion and said most Australians would also consider it ridiculous.

“Our country, Timor-Leste, which came out of 24 years of struggle and trauma, and the subsequent mayhem in 1999, do you think Timor-Leste could possibly pose a security threat to Australia,” he told Guardian Australia.

“Thousands of people in Australia asked the government to help us [during the violence around the autonomy ballot in 1999] and Australia helped us … are we a security threat to Australia, I don’t think so, I think any fair-minded Australian would see this as ridiculous.”

Brandis rejected the suggestions of interference in the case, telling the Senate on Wednesday these were “wild and injudicious claims”. He said he issued the warrants on national security grounds but declined in his statement to disclose “the specific nature of the security matter concerned”.

“The search warrants were issued, on the advice and at the request of Asio, to protect Australia’s national security,” Brandis said.

He said he had instructed Asio not to share any material gathered in Tuesday’s raids with Australia’s legal team in the Hague “under any circumstances”. Brandis said Australia respected the arbitral proceedings.

Guterres said Timor-Leste had acted “in good faith” throughout the long dispute over the negotiation, and both parties had agreed to try to resolve the issue through arbitration, “but now the whole thing has turned sour”.

He said Australia’s actions appeared designed to prevent the witness – who was due to fly to the Hague but has now had his passport cancelled – giving verbal evidence, and it was unclear what impact this would have on Timor-Leste’s case.

“It depends how the arbitration sees it if the witness cannot appear in person … but it doesn’t help our case,” he said. “Australia of all places, our ally, our neighbour, our trusted friend, is doing something that is not worthy of being an example.”

Guardian Australia understands Timor-Leste had intended to seek a form of witness protection for the former Asis officer.

The negotiation centred on boundaries to determine how the two countries would share oil and gas deposits under the Timor Sea, called the Greater Sunrise fields, worth tens of billions of dollars. Woodside Petroleum, which wanted to exploit the field, was working closely with the Howard government during the talks.

Timor-Leste alleges Australia inserted bugs in the cabinet room to listen to Timorese negotiators during the talks, under the guise of a refurbishment paid for by an Australian aid program.

Asked about the raids, Abbott said on Wednesday; "We don't interfere in cases, but we always act to ensure that our national security is being properly upheld. That's what we're doing.”

The Greens have called for a parliamentary inquiry into intelligence overreach after revelations that Australian intelligence attempted in 2009 to listen in to the mobile phone of the Indonesian president, his wife and their inner circle; and revelations this week that Australian intelligence offered to share metadata about ordinary citizens with foreign intelligence partners in 2008.