Water Minister Lim Keng Yaik said the government, through its 100 percent-owned water assets firm, would develop these projects and lease them to water utility firms at low rates.

Speaking to reporters, Lim said financing would not come from the national budget but through long-term debts. Malaysia is already running a budget deficit.

"The asset firm will raise the money with full-cost recovery over 40-50 years. It's off-budget. It will get funds from the capital market," Lim said.

The minister said he would meet some of the country's bankers on Wednesday to discuss financing requirements.

"The first thing I will be telling the bankers, if you don't have 30-year bonds below 5 percent interest, don't come and talk to me, wasting my time," he said.

Lim said that for a start the asset firm needs to raise 10 billion ringgit for the next three years.

The government is already spending about 2 billion ringgit to replace leaky water pipes across the country. "The 2 billion is still not enough," he said.

Water consumption in fast-industrialising Malaysia grew at 8 percent a year between 1981 and 2001, driven by population growth and rapid urbanisation.

Analysts have said water consumption would grow by 4 percent between 2003 and 2010.

Increased spending on water infrastructure will benefit water-related firms such as Puncak Niaga Holdings Bhd, Ranhill Utilities Bhd and PBA Holdings Bhd.