The incident off the coast off Borneo island happened Friday morning and involved Malaysia's navy ship KD Rencong and Indonesia's KRI Tedung Naga, the Sinar Harapan evening daily said, quoting an anonymous Indonesian navy officer.

The left side of the Indonesian ship's hull was damaged while the Malaysian ship's front was also damaged.

"Looking at the circumstances, it is clear that their ship hit ours, not the other way around," the officer told the daily.

He said the Malaysian warship had earlier circled an area where Indonesian workers were building a lighthouse and its crew made provocative gestures, including giving a thumbs down.

A navy spokesman with the Indonesian navy's eastern fleet said he had no knowledge of the incident.

Last month officials from Indonesia and Malaysia began negotiations to settle the dispute over the area. The two countries are set to meet again in May.

Warships from both countries have come into close contact several times since February 16 when energy giant Shell was given a concession by Malaysia's state oil company Petronas.

Jakarta says the blocks awarded by Petronas are outside Kuala Lumpur's sovereignty.

After initial tension, Indonesia and Malaysia agreed to hold peaceful dialogue to end the dispute.

The two countries have locked horns over the territory before. A dispute over the ownership of two islands ended in December 2002 with an International Court of Justice ruling that the islands belong to Malaysia.

Indonesia declared war against Malaysia following sporadic tensions over the future of Borneo island in 1963 after the British relinquished control. The conflict ended three years later as Jakarta focused on internal problems.