Prime Minister Abhisit Vejjajiva said he was adopting a "wait-and-see" approach on the current conflict with the neighbouring country.

Speaking via telephone conference from Tokyo, Foreign Ministry Kasit Piromya said the circumstances surrounding the MoU had changed as Thaksin was now appointed an adviser to the Cambodian government.

"Thaksin knows the Thai position, so Thailand cannot negotiate with Cambodia based on this agreement," he said.

Responding later by video conference to questions from reporters at Government House, Abhisit said: "It was not Thailand that had started it [the current dispute] - it was the Cambodians.

"Therefore, it is they who have to review their position. Right now, we are adopting a wait-and-see approach."

When asked if he had spoken to Cambodian Prime Minister Hun Sen at an official dinner last night in Tokyo, Abhisit said his counterpart was seated at quite a distance from him and that there was a vase between them obstructing his view.

Thailand signed the MoU on the area of overlapping maritime claims in the continental shelf in 2001, but the two countries have not yet made progress on developing and sharing of benefit in the area, Kasit said.

The 26,000-square-kilometre area, with abundant natural gas, is regarded as being in Thailand's national interest and everyone involved should participate in the development of the resource in accordance with the new Constitution, he said.

The Cabinet will discuss the MoU's termination next week and will inform Phnom Penh at an early opportunity, Kasit added.

The termination has further fuelled tensions in relations between Thailand and Cambodia, as the two countries on Thursday announced the downgrading of bilateral ties and recalled their ambassadors.

Thailand and Cambodia granted natural-gas concessions in the overlapping area to many companies, but they cannot exploit the resource as long as the countries are unable to reach any agreement.

Deputy Prime Minister Suthep Thaugsuban, meanwhile, threatened to close the Thai-Cambodian border to trade if Cambodia continued to take an aggressive stance towards the government.

Noppadon Pattama, foreign minister under the Samak Sundaravej administration, said recalling the Thai ambassador was "damaging to Thailand and placed the country at unnecessary risk".

"It's inappropriate to use politics to pressure a neighbouring country," he said.

Suriyasai Katasila, spokesman for the People's Alliance for Democracy, denounced Thaksin for allowing himself to be use by Cambodia and praised the government for the measures taken in response to Cambodia.

He urged the government to review bilateral agreements between the countries, especially ones that place Thailand at a disadvantage on the issue of overlapping claims.

In Phnom Penh, Cambodian government spokesman Phay Siphan dismissed the threats late yesterday and said closing the border would be "an overreaction" that would hurt Thai businessmen more than it would hurt Cambodians living in the area.

He added that Thailand should respect the contents of the agreement on oil and gas exploration.

"They should abide by their international obligations," he said. "This kind of panic [reaction] by the Thai government - they should hold onto their credibility."