Relations between Singapore and Malaysia are improving fast under new leaders on both sides and outstanding issues now have a better chance of being resolved, Malaysia's envoy to the island republic said today.

High-level government contacts are accelerating, tourism is booming and cross-border investments are expanding between the neighbours, Malaysian High Commissioner N Parameswaran said.

"The personalities are important," he told the Foreign Correspondents Association of Singapore.

The thaw began after Malaysia's longtime prime minister Dr Mahathir Mohamad retired last October after 22 years in office and handed over power to his deputy Abdullah Ahmad Badawi.

Mahathir had testy relations with Singapore leaders but Abdullah moved quickly to establish close links with his Singapore counterpart Goh Chok Tong.

Parameswaran said progress is continuing under Singapore's new Prime Minister Lee Hsien Loong ( photo ), who took over two weeks ago from Goh.

"When it was bad, it was really bad," the envoy said of bilateral ties.

Water crisis

The diplomat said that in a gesture that signified improving relations, a large sign saying "Welcome to Malaysia" was taken down last week at a train station inside Singapore which is officially part of Malaysian territory.

The future of the station, a carryover from British colonial rule over what used to be known as Malaya, is one of the sensitive issues that have strained relations between the two countries since they separated almost 40 years ago.

Other thorny issues include the use by Singapore military aircraft of Malaysian airspace, the future price of raw water Malaysia supplies to its neighbour, and a prospective new bridge between them.

Relations have also been strained by rival claims to a rocky islet near their borders and the extensive land reclamation carried out by Singapore, which have both been submitted for resolution by international bodies.

Parameswaran noted the increasing forays into Malaysia by Singapore's state investment arm Temasek Holdings, and said Malaysia could do the same in the city state.

"I think the synergies are developing," he said. "I don't think this could have happened before."

The two countries separated on Aug 9, 1965 after a dispute over racial policies between largely ethnic Chinese Singapore and its Malay-dominated bigger neighbour.