KUALA LUMPUR - Malaysia's government has confirmed it has vetoed an ambitious plan by budget carrier AirAsia to build a US$460 million (S$700 million) airport outside the capital.

Deputy Prime Minister Najib Razak said the proposal was scrapped because the carrier's partner in the project, Malaysian conglomerate Sime Darby, refused to contribute 800 million ringgit (S$335 million) in construction costs.

"If they did not contribute, there is no basis for the project to be considered," he said, according to state news agency Bernama late Sunday.

Najib, who is expected to be appointed prime minister next month, said he had received confirmation of Sime Darby's position in "black and white."

AirAsia founder Tony Fernandes said earlier this year that AirAsia wanted to abandon its shabby and overcrowded terminal next to the main international airport, to improve its standards and lower its operational costs.

But newspaper reports earlier this month said the plan was turned down after Fernandes made a presentation to Najib, who is also finance minister.

Najib said, according to the Star daily, that Malaysia Airports Holdings, which runs the Kuala Lumpur International Airport (KLIA), would build a new budget terminal to replace AirAsia's existing facility.

"We are still negotiating the terms and conditions with AirAsia on the new LCCT," (low-cost carrier terminal) he was quoted as saying.

AirAsia intended to build and operate the new airport in Negeri Sembilan state -- outside the capital Kuala Lumpur -- together with Sime Darby.

An expansion of the current LCCT is due to be completed by March, but by then AirAsia, with around 15.7 million passengers a year, will already have exceeded its enlarged capacity. --AFP