Australian Prime Minister Julia Gillard said on a visit to Malaysia Monday that the two countries hope to strike a free trade agreement by next year.

"We discussed the prospects for concluding the Malaysian-Australia free trade agreement. We have indicated we have a shared commitment to doing that and that we will be continuing with a view to that free trade agreement being concluded next year," Gillard told a press conference.

"Our relationship is in good shape in part because of economic ties," she added.

Deputy Prime Minister Muhyiddin Yassin, standing in for Prime Minister Najib Abdul Razak who is ill with chickenpox, said the two nations had held eight rounds of talks on the deal.

"We hope to move it forward next year and hope to sign as soon as possible," he told the press conference, adding that Gillard's visit will "take our relationship to a new level."

Gillard, accompanied to Malaysia by her partner Tim Mathieson, is on her first regional tour after becoming Australia's first female prime minister earlier this year.

She began the tour with the 16-nation East Asia Summit in Vietnam which took place last Saturday, and will travel to Indonesia later Monday.

Muhyiddin said that between January to August this year, trade volume between Malaysia and Australia reached 7 billion dollars compared to 5.4 billion for the same period last year, an increase of 20.5 percent.

Under pressure from Australia

Gillard said she had also discussed the problem of people-trafficking in the region, and Australia's ambitious plans for a regional asylum-seeker detention centre which it wants to site in the tiny nation of East Timor.

Malaysia last year came under pressure from Australia to take action to halt the flow of illegal migrants to Australia, after it was identified as a transit point for human trafficking.

"We had a significant discussion on the question of transnational crime, and on the question of people smuggling and human trafficking in the region," Gillard said.

"I'm pleased today we have had outstanding cooperation between our law enforcement agencies."

Muhyiddin said Malaysia was not yet able to "take an official position" on the asylum-seeker detention centre and was seeking more information.

"Malaysia wants to see how it can be involved in the exercise... and we need to see how this mechanism can work and what respective parties will need to contribute in any way to the cost of the centres," he said.

East Timor has agreed to continue to discuss the proposal but remains cautious about the plan which would see asylum seekers held there as their refugee claims are assessed.

Thousands of asylum-seekers, many fleeing the conflict zones of Afghanistan and Sri Lanka, have been intercepted en route to Australia from Southeast Asian transit points this year.

- AFP