KUALA LUMPUR (AFP) - Petronas will embark on a US$35 billion (S$43.6 billion) liquid natural gas (LNG) project in Canada following the reversal of Ottawa's decision to block the Malaysian national oil company's purchase of Canadian gas producer Progress Energy Resources.

At a joint press conference on Sunday with his Canadian counterpart, Malaysian Prime Minister Najib Razak said this followed from the "approval principally" given for the state energy firm's US$5.5 billion purchase.

Mr Najib announced that Petronas will spend CAD$36 billion (S$43.6 billion) to build "all the facilities upstream including investment in a pipeline" which he said was the "largest foreign direct investment in Canada by any country".

"We believe this project will be mutually beneficial because it will open up Canadian energy to new markets, principally East Asia," he added of the "gargantuan investment".

Petronas' bid for Progress was initially blocked in October last year, raising questions over Canada's openness to foreign investment, before Canadian Prime Minister Stephen Harper reversed the decision in December.

Mr Harper batted away concerns over Canada's foreign investment policy Sunday, saying that total FDI "has continued to increase over the past year and has increased very rapidly. I'm told it's up by almost a third".

"We view the Petronas investments very positively and all the indications I have is that Petronas is looking at further investments. Obviously our policy involves the use of discretion when it comes to state-owned enterprise," he said.

Mr Harper added that each investment would be judged on its own merit and whether it serves the interests of Canada's economy, while Mr Najib also pointed out that the pipeline deal in the Petronas LNG project has been awarded to a Canadian firm.