Indonesia and Malaysia today began negotiations to settle a dispute over an oil-rich maritime area claimed by the two countries, the Indonesian foreign ministry said.

Foreign ministry spokesman Yuri Thamrin said the two-day meeting, the first to deal directly with the issue, was being held behind closed doors at a secret location, but the Detikom news website said they were taking place at a Bali hotel.

"We are not disclosing the venue of the meeting to allow a favorable atmosphere for the delegates," Thamrin told AFP .

Thamrin said he believed it would take more than one round of talks to solve the dispute, which centres on Kuala Lumpur's granting of an oil concession in the contested area, but he was optimistic of the outcome of the negotiations.

Warships from both countries have come into close contact in the area east of Borneo several times since Feb 16 when energy giant Shell was given a concession by Malaysia's state oil company Petronas.

Jakarta says the blocks awarded by Petronas are outside Kuala Lumpur's sovereignty.

Peaceful solution agreed

After initial tension, Indonesia and Malaysia agreed to hold peaceful dialogue to end the dispute.

The two countries have locked horns over the territory before. A dispute over the ownership of two islands ended in December 2002 with an International Court of Justice ruling that the islands belong to Malaysia.

Indonesia declared war against Malaysia following sporadic tensions over the future of Borneo island in 1963 after the British relinquished control. The conflict ended three years later as Jakarta focused on internal problems.