Malaysia's dispute with Singapore on water supplies could end up in arbitration if both sides fail to agree on a pricing formula, Foreign Minister Syed Hamid Albar said Monday.

"Our preference is for us to resolve it in negotiations. But the other means is for it to go through, if necessary, the legal process," he said, declining to give details.

He added that he was optimistic about the next round of talks to be held in Singapore on Sept 2-3.

"I always go to a negotiation positively," he told reporters.

Syed Hamid said other outstanding issues between the two countries would be dealt with later, as they were "less difficult" than the agreement on the price of water.

The affluent but resource-starved Singapore relies on Malaysia for half its daily water needs but recently moved to recycle waste water to cut its dependence amid a deadlock over the price of Malaysian water.

Water has been a key irritant in bilateral relations since Singapore was kicked out of the Malaysian Federation in 1965.

Other unresolved issues include a proposed new bridge link, use of Malaysian airspace by Singaporean aircraft and the location of Malaysia's customs, immigration and quarantine facilities in Singapore. AFP