Australia and East Timor have signed a new defence agreement amid rising competition in the Indo-Pacific region.

Defence Minister Richard Marles and his Timorese counterpart inked the Defence Cooperation Agreement (DCA) in Canberra on Wednesday.

The agreement sets out a framework for the activities of both nations’ militaries in each other’s countries, and aims to increase the countries’ armed forces working together including on exercising, training and humanitarian assistance.

The signing was witnessed by East Timor president Jose Ramos-Horta, in Australia to seek a solution to a deadlock over lucrative gas fields.

During a meeting with Prime Minister Anthony Albanese, the leaders discussed security, economic cooperation, labour mobility and skills and East Timor’s ASEAN membership bid.

“We have been working towards a DCA for over a decade and today’s signing is a significant step forward in our partnership,” Mr Albanese said.

Mr Marles said the agreement “heralds a new chapter” and he looked forward to joint maritime patrols between the two countries.

Dr Ramos-Horta met with Foreign Minister Penny Wong at Parliament House earlier on Wednesday.

Senator Wong was in East Timor’s capital Dili last week to discuss diversifying the economy, including resolving a dispute over the location of a gas processing hub.

The Greater Sunrise gas field is located in the Timor Sea, off the northwest coast of Australia.

East Timor is entitled to at least 70 per cent of the royalties from the field, estimated to have more than $70 billion in resource value.

It controls almost 57 per cent of the field. Australian energy company Woodside controls 33 per cent and Japan’s Osaka Gas 10 per cent.

Woodside’s preferred option is the already established hub in Darwin, but Timor wants the gas piped to a new site on its southern coast.

The company said in its recent half-year report the joint venture participants “continue to engage” the Australian and East Timor governments on the Greater Sunrise production sharing contract, with talks scheduled for the second half of this year.

Dr Ramos-Horta has threatened his government will turn to China to fund the project if the stalemate remains.

Despite the tensions, Mr Albanese called Dr Ramos-Horta “a friend for a long period of time” and lauded what Timor did to help Australia during the Second World War.

“The people of Timor-Leste did an extraordinary job saving Australian lives during World War Two. We owe them a great debt,” he said.

“The Timorese paid a great price for that. This is an important relationship.”

Senator Wong has described discussions over the Greater Sunrise field as “clearly stuck”.

Dr Ramos-Horta will deliver a televised address to the National Press Club on Wednesday.

– AAP