"Some foreigners would hesitate to invest (there)," he told Malaysia's official Bernama news agency in an interview.

"But as for Malaysia, in the area which I think you have common ethnicity and common religion, it is very good for Malaysians to invest in the southern part of Thailand," he said.

Predominantly Muslim Malaysia and mostly Buddhist Thailand share a long, porous border, and nationals on both sides have close cultural, social and religious sties.

Southern Thailand has a history of separatist violence, ever since Thailand annexed it a century ago. It was previously an autonomous ethnic Malay sultanate.

A recent surge in attacks saw suspected separatists last week set alight Thailand's largest rubber warehouse in the troubled deep south, jointly owned by Malaysians and Thais.

The attack prompted calls from Malaysia's Deputy Prime Minister Najib Razak for Thailand to ensure the security of Malaysian investments in the kingdom's south.

But Surayud, who hailed talks with Malaysian Prime Minister Abdullah Ahmad Badawith is month for boosting ties, said Malaysians were at an advantage in southern Thailand because of their close links, Bernama reported.

"You have the advantage of the ethnic relations, religious relations with the locals and they don't have any discrimination against Malaysian investors," he said.

Malaysia has offered to help Thailand resolve the crisis and Surayud said the countries were also cooperating in social, education and economic areas.

Both countries plan to establish electricity transmission links and an industrial zone at their common border which could see Thai workers supplying Malaysian factories, he said.

"Malaysia is going to set up an area for industrial activity, which is close to Thailand," he said.

Agence France-Presse