Malaysia is working to resolve a raging dispute with India over Prime Minister Mahathir Mohamad's hard stance on Kashmir, and hoping that a 16-nation trade pact, which includes India, will be signed this year despite the strained ties, its trade minister said.

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The relations between the two countries suffered a blow after Mahathir told the UN General Assembly late last month that India had "invaded and occupied" Kashmir.

India revoked the autonomous status of its Jammu and Kashmir state on August 5, by removing Article 370 of the Constitution, and has rejected foreign criticism, largely from Muslim majority countries and China, insisting it is an internal affair.

What is the fallout of the dispute between Malaysia and India?

Indian traders have called for a boycott of Malaysian palm oil — which Mahathir has said amounts to a trade war — and there were concerns in New Delhi that negotiations on the Regional Comprehensive Economic Partnership (RCEP) could be affected too.

The spat between the world's second-biggest producer and exporter of palm oil, and its current biggest customer could most likely benefit Indonesia, the biggest producer and exporter.

Malaysia's minister of international trade and industry, Darell Leiking, told reporters on Thursday that RCEP talks were on track and a final deal should include all the intended participants: the 10 members of the Association of Southeast Asian Nations (ASEAN) and six Asia-Pacific countries — China, India, Japan, South Korea, Australia and New Zealand.

An RCEP summit will be held in Bangkok on November 4.

All eyes on RCEP summit

Leiking said "anything can happen" before the summit, but all 16 countries were moving toward finalising the free trade agreement.

"We hope that RCEP negotiations can be concluded by year-end so that Malaysian companies could reap the opportunities from this mega FTA in opening up more market access for our products and services," he said.

The China-led RCEP is expected to create an integrated market of 3.4 billion people with combined GDP of $49.5 trillion, or about 39% of the world economy.

"We hope that RCEP negotiations can be concluded by year-end so that Malaysian companies could reap the opportunities from this mega FTA in opening up more market access for our products and services."

— Malaysia's minister of international trade and industry Darell LeikingLeiking said he met with Indian Trade Minister Piyush Goyal recently and informally discussed New Delhi's concerns on bilateral ties.

"Hope to meet him more and get more details into the issue and what they want to do," Leiking said. "We have yet to hear (formally) from the government. But we will engage with their government more so."

Separately, the Malaysian minister in charge of palm oil said on Thursday the government was considering sending a delegation to meet with India's top vegetables oil trade body, which had called on members to boycott Malaysian palm oil.

"We need to see the response on the India side," Primary Industries Minister Teresa Kok told reporters in parliament. "It's good to talk and it's good to not do harm to bilateral trade."