JAKARTA, Indonesia - East Timor's government said Wednesday it will block proposals by an Australian-led consortium to develop a disputed oil and gas field worth billions of dollars, the latest move in a long-running battle over where the resources should be processed.

Proposals to exploit "Greater Sunrise" - estimated to hold 240 million barrels of light oil and 5.4 trillion cubic feet (154 billion cubic meters) of natural gas - must be approved by both sides, a 2007 treaty between the neighbours states.

The deal gives the parties until 2013 to agree upon a joint development plan. But Timor's latest position shoots down all proposals put forward so far by the consortium headed by Australian oil and gas company Woodside Petroleum Ltd.

Timor is already tapping a $5 billion petroleum fund established with income from another field in the Timor Sea, but the vastly larger Greater Sunrise is seen as key to developing the young democracy and lifting its 1.1 million people out of poverty.

In their toughest stance to date, Timor says it will not support Woodside's development plan, possibly rendering the 2007 treaty meaningless.

"The current proposed plans of Woodside and the consortium partners to pipe gas from the Greater Sunrise field to either Darwin or a floating LNG (liquid natural gas plant) would not be approved by the government," Secretary of State Agio Pereira said in a statement.

"The executives of Woodside have underestimated the government's priority in ensuring that the resources owned by the people of Timor-Leste are properly managed," Pereira said.

Woodside, which leads the consortium including Royal Dutch/Shell, Osaka Gas and ConocoPhillips, has argued that piping the resources to an existing processing plant in Darwin, more than 300 miles (500 kilometres) away, is the most commercially viable option. It has also researched a floating gas processing plant, which would be the first in the world and cost billions of dollars.

But East Timor, an underdeveloped country with no major industry to speak of, wants to run a deep sea pipeline to its coast, about a third of the distance of a pipeline to Darwin in Australia's Northern Territory. It has been looking for commercial partners to develop a multibillion dollar national petrochemical industry that is says would spur economic growth and dent towering unemployment.

Woodside said in a statement Wednesday that it is still considering development options with its joint venture partners and will seek to "develop the reservoir to the best commercial advantage, consistent with good oilfield practice."

It said "the development of Sunrise will deliver significant social and economic benefits, including petroleum revenues, taxes and training and employment opportunities to both" countries.

With billions of dollars in tax revenue and profits involved, the fight over Greater Sunrise could not be of higher stakes for Timor. The former Portuguese colony broke from Indonesian occupation a decade ago and is struggling to feed, shelter and educate its population.

It ranks among the least developed countries in the world and is the poorest in Southeast asia.

While it is now relatively stable, Timor, also known as Timor Leste, has been wracked by violence and political upheaval in recent years.

Australia, seeking to maintain regional stability, rushed troops to Timor in 2006 amid deadly battles between rival police and army forces. In 2008, President Jose Ramos-Horta was shot and nearly killed by rebels.

The potential windfall from oil and gas could help rebuild a nation that has been devastated by centuries of foreign rule that wiped out a third of the population, but there is also the risk of creating inequality and local discontent that has plagued other oil-rich nations.

"While the government will continue to act in good faith with our partners; the decision for development of Greater Sunrise will not be left to the discretion of Woodside's executives," Pereira said.

The latest of three treaties on the Timor Sea was signed with Australia in 2007. The Certain Maritime Arrangements in the Timor Sea or CMATS, stated that revenue from Greater Sunrise would be split equally. But the deal will be "terminated" if a joint development plan is not agreed upon in seven years or petroleum production does not commence within 10 years, it says.