Under the deal, Singapore will halt instrument landing system procedures at its Seletar Airport, while Malaysia will open up a restricted area near the countries' border.

"Singapore will withdraw the Instrument Landing System procedures for Seletar Airport and Malaysia will indefinitely suspend its permanent Restricted Area over Pasir Gudang," the statement of Malaysian Transport Minister Anthony Loke and Singapore's Transport Minister Khaw Boon Wan said.

This will allow Malaysia Airlines' subsidiary Firefly to start operations at Seletar Airport this month, the statement said. Media reports said the airline postponed its plans to fly out of Seletar Airport last year due to the dispute.

In December, Malaysia said it wanted to take back control of airspace managed by the city-state since 1974, as Singapore's new instrument landing system at its small Seletar airport involved a flight path over Malaysian airspace.

The ministers also said in the joint statement that the two countries have set up a committee to review the 1974 airspace agreement.

Singapore was once part of Malaysia but they separated acrimoniously in 1965, clouding diplomatic and economic dealings for years.

In another dispute, the sides previously agreed to the establishment of a working group to discuss issues around port limits after Singapore protested in December about Malaysia's plan to extend the limits of a port, saying it encroached on its territorial waters.

REUTERS