The talks are expected to see the carriers co-operating on long-haul routes between the two countries, with Jetstar sharing new business with AirAsia and in return the Australian carrier getting rights to operate from Kuala Lumpur.

The Malaysian carrier had recently announced plans to commence low-cost services on long-haul routes, including destinations in Australia. However, the high price tags for securing landing rights were the expected roadblocks for the company's down under plans.

According to Malaysian Minister for Transport Datuk Seri Chan Kong Choy, "We are in negotiations and if things go well, the companies will rollout a low-cost carrier from Australia by the second half of the year."

If the talks succeed, Jetstar would be the first major foreign airline to fly out of Kuala Lumpur's low-cost terminal that is being used exclusively by AirAsia.

Jetstar would become the first major foreign airline to fly out of Kuala Lumpur's low-cost terminal that is run by Malaysia Airports Holdings.

The terminal, which has a capacity to handle 10 million passengers, will handle over 6.5 million passengers this year.

Malaysia will negotiate with Australian government for more landing rights at Melbourne, Sydney, Brisbane and Perth, the Transport Minister said.

At present, the country has landing rights in certain Australian cities under an earlier signed bilateral air agreement between the two nations. The landing rights are being utilised by the national carrier, Malaysia Airlines (MAS).

On the contrary, Australian airlines were not flying into Malaysia. This means that the landing rights in the country under the bilateral agreement were not utilised.

"Malaysia has utilised most of the landing rights to the four cities under the agreement. Therefore, efforts are being made to ask for more landing rights to Australia," he said.

Earlier, AirAsia chief executive Tony Fernandes said the carrier was planning to double its Airbus A320 fleet to 200 as it was planning to expand services in the region.

The carrier has also launched a new low-cost long-haul service - AirAsia X – that would commence operations to China, India and Europe from July. The carrier was expecting to carry 500,000 passengers in its first year of operations and eventually expand destinations in India , Europe and Australia.

Meanwhile, Jetstar was planning to shift its focus from short-haul flights to long-haul services this year, turning its attention to the emerging market for cheap, long-distance flights.

The carrier's long-haul service includes flights from Melbourne and Sydney to destinations like Bangkok and Phuket in Thailand, and Honolulu and Bali in Indonesia. The carrier broke even in December 2006 after one month of operations.