SYDNEY - Australia and Malaysia are close to launching talks on a free-trade agreement in another sign of rapidly thawing relations between the two countries, officials said today.

The Malaysian cabinet is expected to consider soon a report by senior government officials on the benefits of such a pact with Australia, Trade ministry officials in Canberra told AFP .

The development represents a dramatic change in relations between the two since Malaysia's former prime minister, Mahathir Mohamad, was succeeded last year by Abdullah Ahmad Badawi.

Mahathir, whose long-standing enmity towards successive Australian leaders was well known, had for years been a major obstacle to efforts by Canberra to forge closer economic links either with Malaysia or with its regional neighbours.

But Australia already has a free trade agreement with neighbouring Singapore and Prime Minister John Howard's government has also begun talks on a similar pact with Thailand.

Canberra has also successfully negotiated a free trade agreement with the United States for which it is hoping to win legislative approval in both countries before their elections this year.

Prospect of talks on a free-trade pact between Canberra and Kuala Lumpur, unthinkable until a few months ago, would provide a major boost to a push by Australia for a regional trade deal.

Trade in KL's favour

Trade Minister Mark Vaile is said to be hoping for a positive announcement about a start to talks with Malaysia when its high profile trade minister Rafida Aziz visits Australia later this month.

News of talks emerged this week from a meeting of regional foreign ministers in Jakarta which invited Howard and his New Zealand counterpart Helen Clark to the annual Association of South East Asian Nationleaders' summit in Laos in November.

Australia and neighbouring New Zealand, with which it has also had a free trade arrangement for many years, will attend the summit for talks aimed at starting talks on a region-wide trade pact with the 10-member Asean.

Two-way trade between the two countries was around US$6.4 billion at the last count, although it is heavily tilted in favour of Malaysia. - AFP