"We are grateful to Malaysia for supplying us water all these years, and in the years to come," Goh said in a speech to mark the launch of "Newater," which makes sewage and industrial waste water which is made drinkable through the use of latest technology.

"However, I see our diminishing reliance on Johor water in a positive light. It will take the sensitive issue of water out of the equation of bilateral relations," he said. "Singapore and Malaysia can then focus on mutually beneficial cooperation."

Most of Singapore's water needs are now met by raw water piped in from southern Malaysia's Johor state, but the two neighbours are at odds over long-term pricing, one of the key irritants in their volatile ties.

The two neighbours have had a rocky relationship since the island left the Malaysian Federation more than three decades ago.

Despite several rounds of talks, the two sides failed to agree on a price for the water Malaysia sells to Singapore.

Malaysia is seeking a price rise. It now sells raw water to Singapore at three Malaysian sen (less than one cent) per 1000 gallons (4550 litres).

Goh said the two countries would be better placed to work together if the water spat was out of the way.

"Together, we can be a formidable force in economic competition against others, and in addressing other common challenges," said Goh.

With the development of Newater and plans to build a water desalination plant, Goh said Singapore would be able to let the two water agreements with Malaysia lapse when they expire in 2011 and 2061.

"By 2061 when the 1962 Agreement expires, we can be totally self-sufficient, if there is no new water agreement with Malaysia," Goh said, reiterating previous statements by Singapore officials.

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