The Malaysian cabinet is expected to consider soon a report by senior government officials on the benefits of such a pact with Australia, trade ministry officials in Canberra told AFP.

The development is the latest demonstration of a dramatic improvement in the icy relationship that existed between the two since Malaysia's former prime minister, Mahathir Mohamad, was succeeded last year by Abdullah Ahmad Badawi.

Australia already has a free trade agreement with neighbouring Singapore and Prime Minister John Howard's government is also due to conclude a similar pact with Thailand during a visit to Canberra by Thai Prime Minister Thaksin Shinawatra next week.

Canberra has negotiated a free trade agreement with the United States for which it is hoping to win legislative approval in both countries ahead of their elections this year. It has also begun a joint scoping study on a free trade agreement with China.

But Mahathir, whose long-standing enmity towards successive Australian leaders was well known, had for years been a major obstacle to efforts by Canberra to forge closer economic links either with Malaysia or with the Association of South East Asian Nations (ASEAN) group.

Prospect of talks on a free-trade pact between Canberra and Kuala Lumpur, unthinkable until a few months ago, would provide a major boost to a push by Australia for a regional trade deal.

Trade Minister Mark Vaile is hoping for a positive announcement about a start to talks with Malaysia when its high profile trade minister Rafida Aziz visits Australia later this month.

"I will be discussing this issue as part of the appropriate discussions we will be having with Malaysia at the upcoming annual Australia-Malaysia joint trade committee meeting in late July," Vaile told AFP through a spokeswoman.

News of the proposal emerged this week from a meeting of regional foreign ministers in Jakarta which invited Howard and his New Zealand counterpart Helen Clark to the annual ASEAN leaders' summit in Laos in November.

Australia and neighbouring New Zealand, with which it has also shares a longstanding free trade arrangement, will attend the summit aimed at starting talks on a region-wide trade pact with the 10-member ASEAN.

Mahathir had previously blocked Australian attempts to participate in the summit, which is crucial to efforts to build a regional group that would link ASEAN to China, Japan and South Korea.

But Malaysia's Deputy Prime Minister Najib Abdul Razak said recently that his country was ready to consider a free trade agreement with Australia and Foreign Minister Alexander Downer discussed the possibility with officials in Kuala Lumpur last month.

Two-way trade between the two countries was about 6.4 billion dollars (4.5 billion US) at the last count, although it is heavily tilted in favour of Malaysia, which enjoys a large surplus.