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A former intelligence officer who exposed an Australia spying operation in East Timor is facing criminal prosecution, an MP has revealed.

East Timor took Australia to a UN court in 2014 over the spying row, related to a border deal from a decade earlier.

That treaty set out how the nations would divide lucrative gas reserves in the Timor Sea. East Timor later axed the deal after the spying revelations.

A lawyer says newly laid charges in Australia will be contested.

Andrew Wilkie, an independent Australian MP, used parliamentary privilege on Thursday to reveal that prosecutors had charged the former spy - known only as "Witness K" - and his lawyer, Bernard Collaery.

Witness K had previously raised concerns about an Australian operation that allegedly planted listening devices in East Timor's cabinet rooms in 2004.

At the time, the two nations were negotiating their maritime boundary. The dispute was only settled earlier this year with an agreement on a permanent border.

In 2013, Mr Wilkie said Australian authorities raided Witness K's home and Mr Collaery's office and seized documents.

Witness K's passport was allegedly cancelled at the time, preventing him from travelling to The Hague to give evidence to a UN court.

On Thursday, Australian prosecutors confirmed that the pair had been charged with conspiracy to communicate information about the Australian Secret Intelligence Service, the nation's overseas spy agency.

The charge carries a maximum penalty of two years in jail. Mr Collaery said the case would be vigorously defended.

Mr Wilkie said told parliament that the prosecution was an "insane development".

"The bottom line is that the spying on East Timor was indeed illegal and unscrupulous," he told fellow MPs.

"This government wants to turn the former Australian Secret Intelligence Service officer and his lawyer into criminals."

The treaty signed earlier this year will give East Timor at least 70% of the proceeds from the most lucrative undersea gas fields.