An oil and gas treaty with Australia will be torn up by East Timor as it has been the centre of espionage allegations, international arbitration and a bitter diplomatic dispute.
The 2006 treaty relates to a temporary maritime border in the Timor Sea, and access to oil and gas deposits worth an estimated $40 billion.
The agreement had outlined a 50-year freeze on negotiations for a permanent border.
But East Timor, also known as Timor-Leste, had claimed the treaty was invalid given Australian intelligence operations in 2004.
Diplomatic relations have been tense since East Timorese officials accused Australia of spying on cabinet ministers amid negotiations on the treaty to divide the oil and gas fields.
On Monday, a joint statement from both countries said the Treaty on Certain Maritime Arrangements in the Timor Sea would no longer apply, after a three-month transition period.