Prime Minister Mahathir Mohamad said Singapore was making Malaysia a scapegoat to divert its citizens' attention away from its many internal difficulties.

``Malaysia will not play to Singapore's tune or let itself be used as a scapegoat to make Singaporeans forget their economic difficulties,'' he said on Thursday.

``For the very first time, Singapore is facing a very difficult economic situation. The economy has achieved minus growth. There is a lot of unemployment. People formerly working in banks are now taxi drivers.''

He said government-owned companies had lost ``billions of dollars'' through investments overseas, such as in Enron, Virgin Atlantic, Air New Zealand and China.

``In Singapore, you cannot discuss this in public and its press cannot give details on the losses. So, Singapore has to focus on other things to divert the people's attention,'' he said.

Dr Mahathir said there was evidence that factions within Singapore's ruling People's Action Party were seeking to outdo each other with attacks on Malaysia.

Sibling rivalry across the Causeway is the norm in bilateral relations, but the latest spat, ostensibly over the price Singapore pays to import water from Malaysia, has lifted tensions to the extent that the prospect of war has been raised by the media in both countries.

Dr Mahathir was quick to dispel such notions, saying: ``We think this talk of war and sovereignty should stop. We are not in the business of killing innocent people.

``We have no quarrel with the people of Singapore. It is not our intention to deprive them of water. We will continue supplying them with water.''

While the world awaits developments in Iraq, Singapore and Malaysia have been obsessed with a host of outstanding issues that has plunged bilateral relations to the worst level in a decade.

They are also haggling over the sovereignty of the disputed island of Pulau Batu Puteh, and there is friction over claims that land reclamation by Singapore is affecting Malaysian shipping lines.

In the latest flashpoint in bilateral relations, Malaysia has been incensed by the publication of a series of letters between the two governments concerning the water issue by Singapore's Straits Times, a government-owned newspaper.

``It is not very nice to publicise letters which are written in confidence. It shows a lack of good faith,'' Dr Mahathir said.

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