A dispute over the revenue from a huge gas field between Australia and Timor-Leste is to be settled by an internationally appointed mediator.
The Permanent Court of Arbitration in The Hague decided it will oversee compulsory conciliation between Timor-Leste and Australia, overruling Australia's objections.
Timor-Leste, which became a sovereign state in 2002, has been blighted by poverty and is dependent on two oil and gas fields, Bayu Undan and Kitan.
A third, the Greater Sunrise gas field, straddles the border between Timor and Australia's territorial waters.
The Australian government has always said its rights to the field was settled by a treaty in 2006, but Timor-Leste disagreed.
Timor said the treaty was signed under pressure, and further undermined by an espionage scandal in which Australian agents bugged Timorese cabinet rooms.
Australian foreign minister Julie Bishop said her country accepted the international arbitration court's decision on compulsory conciliation.
"We are committed to working together to strengthen our relationship and overcome our differences in the Timor sea," she said in a statement.
The verdict was also welcomed by Xanana Gusmao, Timor's former prime minister and president.
"Just as we fought so hard and suffered so much for our independence, Timor-Leste will not rest until we have our sovereign rights over both land and sea," he said.
The Greater Sunrise field is far closer to Timor than Australia, but Canberra claims most of the Timor Sea, saying most of it is shallow water, and forms part of Australia's continental shelf. As a result, the sea boundary bisects the oilfield.