By Matthew Doran and Peter Lloyd– ABC News
East Timor is taking Australia to the United Nations to solve the dispute over its maritime border under international maritime law.
The island nation has long argued current arrangements mean it is missing out on billions of dollars in revenue from offshore oil and gas fields.
Last month, thousands of protesters gathered outside the Australian embassy in Dili calling for Australia to negotiate.
In a statement, the East Timorese Government said while there were temporary resource-sharing arrangements in the Timor Sea, there was no permanent maritime boundary between Australia and the small island nation.
It has now approached the UN to begin a formal conciliation process conducted by an independent panel of experts.
Australia has withdrawn from the maritime boundary jurisdiction of the UN Convention on the Law of the Sea (UNCLOS).
In a statement, a spokeswoman for the Foreign Minister Julie Bishop said Australia was disappointed East Timor had decided to take the matter to the UN.
"We stand by the existing treaties, which are fair and consistent with international law," the spokeswoman said.
"These treaties have benefited both our countries and enabled Timor-Leste to accumulate a Petroleum Fund worth more than $16 billion.
"Timor-Leste's decision to initiate compulsory conciliation contravenes prior agreements between our countries not to pursue proceedings relating to maritime boundaries."
East Timor believed if the maritime boundary was decided under UNCLOS, most of the oil and gas reserves in the Timor Sea would lie within their territory.
The location of the maritime border in relation to a multi-billion-dollar oil and gas field in the Timor Sea is central to a spying scandal that has rocked relations between East Timor and Australia.
Australia has been accused of bugging East Timor's cabinet office during negotiations for a treaty that would divide the revenues from the $40 billion Greater Sunrise oil and gas field.
That treaty ruled revenue from the Greater Sunrise field would be split evenly between the two countries.
"Establishing permanent maritime boundaries is a matter of national priority for Timor-Leste, as the final step in realising our sovereignty as an independent state," Prime Minister Rui Maria de Araujo said.
"Under international law, Australia is obliged to negotiate permanent maritime boundaries with Timor-Leste but it has refused to do so, despite all our invitations.
"This has left us with only one option.
"This process allows for a commission to assist our two countries to reach an amicable solution on permanent maritime boundaries."
Dr Araujo said his country is seeking a fair and equitable solution to what it argues it is entitled to under international law.
'It's really time to draw the line': Senior East Timor minister
Agio Pereira is the Minister of State, Timor Leste's second most important Cabinet position after the Prime Minister.
"It's really time to draw the line to give more certainty for East Timor and to consolidate more or less the sovereignty," he told the ABC's PM program.
Mr Pereira argues that East Timor will be a safer, more secure country if the boundaries change.
"The sovereign access to natural resources is a very sacrosanct principle of UN member states," he said.
"(A) sovereign nation state, without that, does have a lot of constraints in terms of full development of its own capacity, and that definitely will give Timor much higher certainty and better understanding of its potential."
This is the first time in the UN's history that the world body is being asked to step in.
Mr Pereira said Australia must abide by the UN's findings.
"Australia has been trying hard in the last few years to be as best of a citizen in international community as possible.
"I think Australia cannot go on lecturing other countries about respecting international law in the limitation of maritime boundaries, and yet look the other way in its closest neighbour, Timor Leste."
Mr Pereira made the case that Australia was behaving like China in its approach to the domination of the South China Sea. But he chose his words very carefully in pushing that line.
"It's in various fronts. I think Australia also played a very important role in other international issues, and that's very important. But you must lead by example."
But he said he was "not necessarily" comparing Canberra with Beijing.
"We see the foreign policy of Australia as a complex one in geopolitical sense, in its regional security sense, in economic sense. We respect that."
A history of treaties in the Timor Sea
In 1989 Australia and Indonesia signed the Timor Gap Treaty when East Timor was still under Indonesian occupation.
East Timor was left with no permanent maritime border and Indonesia and Australia got to share the wealth in what was known as the Timor Gap.
In 2002 East Timor gained independence and the Timor Sea Treaty was signed, but no permanent maritime border was negotiated.
East Timor has long argued the border should sit halfway between it and Australia, placing most of the Greater Sunrise oil and gas field in their territory.
In 2004 East Timor started negotiating with Australia again about the border.
In 2006 the CMATS treaty was signed, but no permanent border was set, and instead it ruled that revenue from the Greater Sunrise oil and gas field would be split evenly between the two countries.