China has signed an agreement with Laos to cooperate on developing a railway for the landlocked nation, a source close to the deal said Friday.

Laos, which has one of the fastest growing economies in the region, currently has only 3.5 kilometres (2.1 miles) of train track.

The memorandum of understanding coincides with a call by the Association of Southeast Asian Nations (ASEAN) this month for quicker development of the region's transport links to speed recovery and boost competitiveness.

Under the deal, China and Laos will set up a Sino-Lao Railway Corporation "working group", the source said, adding: "It's a plan of mutual respect and benefit."

The memorandum itself did not provide many details of the project, he said.

Khamseng Sayakone, director general of the Lao National Railway Authority, declined to comment when contacted by AFP.

But he was quoted by the Vientiane Times newspaper Friday as saying the agreement was signed on April 7. A long-term Chinese government loan would fund construction costs, which are estimated at more than four billion dollars, he added.

The railway would link the Chinese border with the Laotian capital Vientiane before heading east to Khammuan province and the border with Vietnam, the report said.

Laos's only railway link opened in March last year and runs from the Thai border town of Nong Khai to Thanaleng. Thailand funded the 197-million baht (six million dollar) project.

Laos is a member of the 10-nation ASEAN, which this year began to implement a free trade agreement with China, its third-largest trading partner.