The veteran Malaysian leader did however criticize the recent Singaporean decision to publicise letters he wrote to the republic's former premier Lee Kuan Yew over the price of water Malaysia supplied to the resource-starved island.

"The facts are not correct and I think it is not nice to publicise letters which were written in confidence. It shows a lack of faith," he told reporters after opening a factory here.

"It is very difficult now for us to write letters at all because we might as well negotiate through the press."

Asked if the two would resume talks to ease tensions, Mahathir said Malaysia was prepared to do so but noted the focus had since shifted from water prices to Singapore's sovereignty in the dispute over an islet off the southern Malaysian state of Johore claimed by both.

The neighbours have agreed to refer the case to the International Court of Justice.

"We are always ready to talk but this is not about the price of water. This is about the sovereignty of Singapore. I don't understand," Mahathir said.

"In any case, Malaysia is not a country that goes to war for territorial gains."

The premier's comments followed Singapore's rebuke Saturday for "loose talk of war" by politicians and the media in Malaysia over a series of bilateral disputes.

Singapore's Foreign Minister Shunmugam Jayakumar cited a December 31 statement by his Malaysian counterpart Syed Hamid Albar who said Singapore has only two choices -- compromise or go to war.

He also noted that Mahathir, in his New Year's Day message, had warned Kuala Lumpur would give a "bloody nose" to any country that violated its sovereignty.

The two sides have had a testy relationship since Singapore was expelled from the Malaysian Federation and gained independence in 1965.

They are also squabbling over a proposed new bridge, the use of Malaysian airspace by Singaporean aircraft and the location of Malaysia's customs, immigration and quarantine facilities in Singapore.

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