Just as many had feared, the stormy relationship between Thailand and Cambodia was pushed to the edge Thursday when Bangkok responded to fugitive ex-PM Thaksin Shinawatra's appointment as the neighbouring country's economic adviser by recalling its ambassador from Phnom Penh.

Just hours later, Cambodia responded by pulling its ambassador out of Thailand, such move ensuring that bilateral ties were at their worst level in years.

If Thaksin's appointment was an unmistakable diplomatic provocation, recalling the Thai envoy was the strongest possible response yet - equivalent to a downgrade of relations between the countries.

Former foreign minister Tej Bunnag warned that the ambassadorial recalls meant a major channel of communications had been removed.

The foreign ministry recalled Prasas Prasasvinitchai, the ambassador to Phnom Penh, to Bangkok Thursday after Cambodian Prime Minister Hun Sen announced on Wednesday that Thaksin had been royally appointed as economic adviser and would not be extradited to Thailand.

These new developments add more problems to the ongoing process of boundary demarcation, and border conflicts at the area near the Preah Vihear Temple will become more difficult to resolve.

Now it is up to Prime Minister Abhisit Vejjajiva to calmly speak to Prime Minister Hun Sen when they meet in Tokyo Friday and Saturay at the Japan-Mekong Summit, Tej said.

"Bilateral ties should not be damaged by a single individual," he added.

However, Chavanont Intarakomalyasut, secretary to the foreign minister, said there were no plans for Abhisit to meet Hun Sen during the Tokyo summit.

"We will not call him but if he calls us, we might talk," he said at a press conference. "So far we have nothing to say to him."

Reflecting Bangkok's "enough is enough" attitude, Chavanont said Thailand would not tolerate Hun Sen's behaviour any longer because the government had already explained Thaksin's legal status to him several times.

"Thaksin's appointment is seen as an interference in Thailand's domestic affairs and a failure to respect the Thai judicial system," he said.

Downgrading bilateral relations is always an option for Thailand when it comes to responding to Cambodia. The Kingdom had previously downgraded ties in 2003 after an arson attack at the Thai Embassy in Phnom Penh - ironically while Thaksin was prime minister. But that was a brief estrangement because Thaksin was always on good terms with Hun Sen.

However, this Democrat-ruled government is different. It is not clear how long it will take to resume normal relations, because the Thai side is going to review all bilateral agreements and cooperation projects. Thailand has a number of ongoing projects with Cambodia in many areas, including transportation and energy.

Every time relations between the two nations get sour, Thai interests in Cambodia, notably in trade and investment, always get affected. The 2003 riots and the anti-Thai sentiment caused a lot of damage to Thai businesses in the country, and investors were only able to resume their businesses a few years ago.

Thailand currently has scores of investment projects worth billions of baht, but bilateral trade in the first half of this year showed a 25-per-cent contraction from the same period last year, though trade experts believed it would recover in the second half. Border trade was also expected to show signs of recovery if relations had not been jeopardised.

Besides, the situation could become worse if a party in Cambodia stoked anti-Thai sentiment, as happened in 2003.

The only way to maintain bilateral interests would be to mend relations as soon as possible. However, with Thaksin and Hun Sen now the best of friends, observers say things can go either way - better or worse.