Australia has lost in its claim that an international commission has no jurisdiction to hear a complaint by East Timor in the bitter dispute over undersea oil and gas riches.

Prime Minister Malcolm Turnbull earlier this year knocked back a call for fresh negotiations on the maritime boundary in the Timor Sea, but the decision released on Monday from the Permanent Court of Arbitration at The Hague opens the way for talks between the two countries.

East Timor remains incensed by allegations that Australian spies bugged the cabinet office of its tiny neighbour during negotiations for a 2006 treaty to divide oil and gas revenue.

In a statement on Monday, the commission at The Hague ruled it had the jurisdiction to hold a "conciliation" under a never-before invoked article of the international law of the sea.