Thailand's cabinet on Tuesday agreed to lower tariffs on cars imported from Malaysia to five percent, ending a drawn-out dispute with the kingdom's southern neighbour.

Malaysia had insisted that under the Association of Southeast Asian Nations (Asean) regional free trade deal, its auto exports to Thailand should carry the five percent tariff that Thailand imposes on other Asean countries.

The cabinet said in a statement that it had agreed to the Finance Ministry's proposal to cut the tariff as Malaysia had honoured its commitments under the Asean Free Trade Area since March 2006, it said in a statement.

Malaysia has long complained that the tariff on its cars, especially national car Proton, should be cut from 20 percent to five percent.

Thailand had argued that parties were only entitled to tariff cuts if they had removed other trade restrictions.

The cabinet statement said Malaysia had removed its restrictive national imports scheme.