The two states, which have a similar language, religion and race, are trying to forge a distinct cultural identity as part of their push for tourism - a major source of foreign exchange.

'We will form a group of eminent persons - seven from each side,' Prime Minister Abdullah Ahmad Badawi said after talks with visiting Indonesian President Susilo Bambang Yudhoyono.

'This is a good development because we hope issues relating to culture, religion and other matters will not lead to a disturbing situation.'

Dr Yudhoyono arrived on Thursday for a three-day visit to smooth relations between the two neighbours, following disputes over cultural theft and ill-treatment of migrant workers.

Indonesians complained last year about Malaysia's use of an Indonesian folk song and mask dance in its tourism campaign.

Malaysian officials countered that the two countries' cultures overlap as both are part of the Malay archipelago.

But Kuala Lumpur has since dropped the use of both art forms in its tourism promotions in the wake of the outcry.

Malaysia had declared 2007 as 'Visit Malaysia Year' while 2008 is 'Visit Indonesia Year'.

There is also some resentment following reports that Indonesian migrant labourers and maids in Malaysia have been abused by the authorities or their employers.

Dr Yudhoyono said both leaders agreed to expand trade, investments and resolve the problems relating to treatment of Indonesian workers in Malaysia.

He said there were 17 high-profile cases, mainly abuse involving Indonesians, in the Malaysian courts.

'Justice must be upheld,' he said.

'We also want a better mechanism to ensure the presence of Indonesian workers in Malaysia would benefit Malaysia and Indonesia,' he said.

As of Sept 30, there were 2.2 million foreign workers in Malaysia, about 60 percent of whom were from Indonesia, Malaysian government data showed.

At the talks, Malaysia and Indonesia also agreed to form a joint committee to explore ways to boost trade and investment.

The committee will be chaired by the trade ministers of the two countries, they said in a statement.

Bilateral trade reached $10 billion (S$14.3 billion) in the first 11 months of 2007. Malaysian firms invested $299 million(S$427.7 million) in Indonesia between January and October last year, Malaysian data showed. -- REUTERS