Australia and Malaysia have signed a bilateral agreement covering education co-operation that is expected to see Australian university campuses opening in the Asian nation.

The agreement was signed in Kuala Lumpur this month by the two prime ministers, Paul Keating and Mahathir Muhammad, during a visit to the Malaysian capital by the Australian leader.

It follows approval earlier this month by the Malaysian parliament for a limited number of foreign universities to set up campuses.

The memorandum of understanding was described by the Australian Vice Chancellors' Committee as a major breakthrough. Australian universities are competing with British and United States institutions to obtain one of the restricted branch campus licences.

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They include the Royal Melbourne Institute of Technology, which claims to be the first to set up a full campus in South-east Asia. The institute offshoot opened in Penang on January 22 as a joint venture with a Malaysian partner with huge facilities on a large site.

A spokesman for the university said RMIT would consider whether to apply for foreign university status. The new college would be distinguished from other Australian operations in that its focus was on engineering and technology.

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A special feature is an intensive two-year advanced diploma that provides students with advanced standing in university-level subjects.

Students who complete the diploma would be guaranteed a place at RMIT to complete their degrees, the spokesman said.

During his visit, Mr Keating also witnessed the signing of an agreement between Monash University and its Malaysian partner, the SungeiWay group, which proposes the establishment of a branch campus of the university in Malaysia.

Monash University already has twinning arrangements with a number of education institutions.

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A consortium of 11 Australian and New Zealand universities, headed by Sydney and Adelaide universities, has arrangements with the International College in Penang to accept college students into their degree courses. The college currently has more than 100 undergraduates enrolled.

Australian education minister Simon Crean said the memorandum of understanding with Malaysia would assist twinning arrangements and joint ventures in that country. It would also further enhance mutual recognition of qualifications.

A spokesman for the vice chancellors' committee said limited recognition of Australian qualifications by Malaysian authorities, notably the civil service, had been a vexed issue and had seriously impeded recruitment of Australian professionals in Malaysia.