Timely diplomacy may end a prickly border dispute between Indonesia and Malaysia, but the incident exposes a deep distrust that could lead to greater troubles and test regional unity, analysts say.

With warships, fighter jets and troops on standby around a coastal border region of Borneo island at the centre of an oil concession row, Malaysia and Indonesia have come their closest to conflict in four decades.

The leaders of the two countries have pledged to end the spat with talks not violence, a move in line with both nations' emergence as stable and pragmatic players in the robust Association of Southeast Asian Nations bloc.

But observers say, despite the neighbours' close historical, ethnic and religious links, the recent bout of sabre-rattling on top of other festering complaints could unleash greater antipathy.

"It is true that there is a serious potential for relations to worsen as many here are questioning why Malaysia has been acting like this recently," said Sujati Jiwandono, of the Center for Strategic and International Studies think tank.

The dispute centres on Kuala Lumpur's granting last month of oil exploration rights to energy giant Shell in the Sulawesi sea near Malaysia's Sabah state and Indonesia's East Kalimantan province, an area claimed by both countries.

Indonesia is still smarting from a December 2002 defeat when the International Court of Justice awarded Malaysia two of the area's contested islands, Sipadan and Ligitan.

In the past week, warships from the two sides have come into close contact in the area several times with the two sides accusing each other's boats and airplanes of territorial incursions.

Migrants crackdown

The incident follows a recent crackdown by Malaysia on illegal migrant workers, most of them from Indonesia, that has already soured ties between the region's only predominantly Muslim nations.

Observers say that while leaders have stressed friendship, the events will fuel existing anti-Malaysian sentiments in Indonesia and may exacerbate worrying levels of nationalism in the giant archipelago.

MT Arifin, a political analyst from Indonesia's state-run March 11 University, said a series of street protests against Malaysia in Indonesian cities exposed a "growing dislike" for the nation next door.

"A lot of people are questioning the ethics of friendship of a neighbouring country, a country that is also of the same race," he said, referring to the Malay ethnicity prevalent in both nations.

Activists in Makassar, the capital of the Indonesian province of South Sulawesi, have opened registration centers for people "prepared to die for the nation," in defending the country's sovereignty over the disputed area.

Groups have also protested outside the Malaysian embassy in Jakarta, pelting the mission with fruit and yelling: "Crush Malaysia".

Syamsuddin Harris from the state Indonesian Institute of Sciences said the dispute recalled open conflict between the two sides more than 40 years ago, although the latest problem was unlikely to escalate to warfare.

"There is definitely an opportunity for heightening anti-Malaysian sentiments here although it would not reach the level of the confrontation in the 1960s," he said.

On January 20, 1963, the Indonesian government of founding president Sukarno declared war against Malaysia following sporadic tensions over the future of Borneo island after the British relinquished control.

The war, which included mutual incursions by troops, was halted in August 1966 by Sukarno's successor Suharto, who was more interested in addressing domestic issues than pursuing the conflict with Malaysia.

Detracting internal woes

But Harris warned the Indonesian government could deliberately inflame the Malaysian dispute to detract from internal troubles, including protests over fuel price hikes and the failure to meet promises of resolving economic woes.

"The government has an interest in that the Malaysian issue overshadows many other problems at home," Harris said.

While the dispute between Indonesia and Malaysia has few direct consequences beyond the two countries' borders, Kusnanto Anggoro, also of the Centre for Strategic and International Studies, said it will reverberate regionally.

But while the problem was "serious", Anggoro said Asean would be able to weather the storm, although it exposed flaws in the bloc's ability to resolve problems between its member states.

"Asean's High Council has been relatively ineffective and disputes have in the past been addressed bilaterally rather than going through the group's institutions," he said.