"There is a proposal to pay $1 billion to Malaysia as advanced payments for its LNG," said a senior official at the cabinet's Council for Economic Planning and Development.

Unconfirmed local media reports said the $1billion energy payments deal may have been negotiated by Taiwan officials attending the Asia-Pacific Economic Cooperation meetings in Malaysia.

Chiang Pin-kung, chairman of the Council for Economic Planning and Development, was in Kuala Lumpur heading Taiwan's APEC delegation and met Malaysian prime minister Mahathir Mohamad.

Council officials in Taipei said they were unaware of any progress on the deal.

"The $1 billion proposal is being discussed with the Malaysian government, but we don't know if any deal has been reached during the Apec meetings," one council official said.

Taiwan's Chinese Petroleum Corp put a slightly different spin on the arrangement, saying the $1 billion would not be an advance payment but merely a loan to Malaysia, with Chinese Petroleum's payments going towards repaying the loan.

"The $1 billion will not be Chinese Petroleum's advanced payments for Malaysian LNG, but local banks can draw funds against proceeds from Malaysia's long-term LNG supply contract with us," a senior Chinese Petroleum executive told Reuters.

Chinese Petroleum buys 2.25 million tonnes of LNG a year from Malaysian state giant Petroliam Nasional Bhd, or Petronas, under a 20-year term contract signed in 1994, executives said.

Executives said 2.5 million tonnes of LNG would be worth about $200 million -- meaning that Chinese Petroleum could put as much as $200 million a year into loan repayments, depending on how the loan is structured.

Possible participants in the deal have not been identified, but sources in Taipei said Taiwan Bank, Chiao Tung Bank and The Export-Import Bank of the Republic of China were likely to joint the loan.

Taipei media have said the loan would be part of Taiwan's plans to assist recession-battered southeast Asia.

Taipei has no diplomatic ties with Malaysia or its southeast Asian neighbours, all of which recognise only Taiwan's arch rival, the communist Chinese government in Beijing.

Taiwan, in its efforts to defy Beijing's diplomatic embargo, has sought to put the island's great wealth and economic health at the service of its troubled Asian neighbours, prompting Beijing to accuse it of exploiting their distress for political gain.