A contract between Malaysian, Indonesian and Saudi companies was signed to build a 7 billion dollar pipeline in order to reduce by some 20 percent tanker traffic in the Malacca Strait, officials said Tuesday.

Malaysia's Trans-Peninsula Petroleum signed the agreement late Monday with Malaysia's Ranhill Engineers and Constructors and Indonesia's PT Tripatra to build the 300-kilometre pipeline over seven years, company officials confirmed.

Trans-Peninsula Petroleumalso signed separate agreements with the Indonesian firm Bakrie and Brothers to supply steel pipes and Al-Banader International Group of Saudi Arabia, which will provide the oil.

The pipeline is to stretch across the north of Peninsular Malaysia from the state of Kedah to Kelantan, just south of the Thai border with Thailand.

Half of the world's oil shipments currently pass through the strait, the busiest seaway in the world with an annual traffic of more than 60,000 ships. The pipeline is to ease congestion in the Malacca Strait.

"The savings in using our pipeline to the oil producers, to oil traders, is enough to even pay for one month of storage," said Mohamad Kamil Sulaiman, chairman of Trans-Peninsula Petroleum.

"Work would begin in 2008 with land acquisitions made in cooperation with the respective state governments," Mohamad Kamil was quoted as saying by Malaysia's official Bernama agency. "There will be three phases in the construction spanning a period of seven years altogether."

The 48-inch-diametre pipeline would have a capacity of 6 million barrels per day throughput of crude oil.