KUALA LUMPUR (REUTERS) - Malaysia is dropping a plan for a high-speed rail link between Kuala Lumpur and Singapore, Malaysia's Prime Minister Tun Dr Mahathir Mohamad said on Monday (May 28).

"It is a final decision but it will take time because we have an agreement with Singapore. We have to manage it at the least cost possible," Dr Mahathir told a press conference.

The 92-year-old, who triumphed over Datuk Seri Najib Razak in a general election this month, had previously said there were high financial penalties for pulling out of the project and Malaysia would try to find out how it could reduce those costs.

He said on Monday that he had not seen the agreement but was told "the compensation may be as much as 500 million". However, he said he was unsure if this was in ringgit or dollars.

He first told the Financial Times in an interview published on Monday, ahead of the press conference, that he would drop the high-speed rail project.

"We need to do away with some of the unnecessary projects, for example the high-speed rail, which is going to cost us RM110 billion (S$37 billion) and will not earn us a single cent. That will be dropped," Dr Mahathir said in the FT interview.

The project, valued by analysts at about RM50 billion or S$17 billion, is out for tender and is scheduled to be completed by 2026.

Dr Mahathir has also said his government was haggling with Chinese partners over the terms of a S$14 billion rail deal aimed at connecting the South China Sea at the Thai border in the east with the strategic shipping routes of the Straits of Malacca in the west.

He estimates that Malaysia could cut almost a fifth of its US$250 billion national debt and liabilities by scrapping such big projects.