Singapore's land reclamation work was "within (its) rights", visiting Deputy Prime Minister Lee Hsien Loong said after meetings with his Malaysian counterpart Abdullah Ahmad Badawi and Prime Minister Mahathir Mohamad.

But Malaysia was "not happy" with what Singapore was doing, Abdullah said in a separate exchange with reporters.

Lee said both Malaysian leaders had raised the issue of Singapore's land reclamation work in the narrow Tebrau Straits separating the two countries.

Malaysia fears the project is too close to its border and could obstruct ships headed for ports in its southern state of Johor, which are being promoted to rival Singapore's port.

But Lee said: "The land reclamation is within Singapore's territorial waters and it is within our rights."

Malaysia had agreed to put its concerns in writing and Singapore would study them, he said.

Lee, whose four-day visit to Malaysia had been planned before the row erupted, said that otherwise they had "good general discussions on bilateral relationships, regional issues and the problem of terrorism."

Asked whether relations would be affected by the land row, he said there would always be ups and downs but it was important to maintain good ties "because we are neighbours permanently".

Disputes were better settled through quiet diplomacy because "if they get played up in the press and become a big issue then they become more difficult to resolve because both sides will have their manoeuvre room restricted."

Abdullah said Lee agreed that "if we have any proof that the reclamation work in Singapore has caused any ecological damage or affected the deep water channel ... Singapore is ready to accept Malaysia's note of concern."

Malaysia had already started a survey to determine the consequences of the reclamation project.

Asked whether he thought the row would escalate, he said: "I don't think we would like this to escalate into a position that will affect us adversely.

"Both of us are now trying to strengthen our economies... so any kind of development that is not going to help us naturally we will not allow that to happen.

"At the moment I don't believe it has soured relations but there are concerns on both sides. We are not happy with what they are doing," Abdullah said.

The row has put a fresh strain on often prickly relations between Malaysia and its tiny but prosperous neighbour.

Since Singapore was ejected from the Malaysian Federation in 1965, the two have become economic rivals, with fast-industrialising Malaysia steadily closing the wealth gap with the island.

Apart from the land reclamation project, largely Muslim Malaysia has also criticised Singapore's ban on Islamic headscarves in schools and its recent suspension of three girls who flouted the ban.

Other issues that have strained ties include water supplies, a proposed bridge linking the countries and the use of Malaysian airspace by Singaporean aircraft.

Lee, who is accompanied by a 12-member entourage including three members of parliament, is scheduled to meet Defence Minister Najib Razak and Foreign Minister Syed Hamid Albar before returning to Singapore on Thursday.

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