Australia and the United States are the only two developed countries that have refused to ratify the landmark Kyoto treaty and Howard's remarks drew immediate criticism from environmental groups.

The prime minister said the new initiative would address climate change by slowing the rate of trees being cut down in countries in the region such as Indonesia and Papua New Guinea.

"As everybody knows, if you can do that you will reduce greenhouse gas emissions," he told reporters.

"What this initiative will do, in a shorter period of time, is make greater contribution to reducing greenhouse gas emissions than, in fact, the Kyoto protocol."

The fund is designed to help developing countries stop the illegal destruction of rainforests, plant new forests and invest in sustainable forestry.

Australia will invite other nations including Britain, the United States, Germany, Brazil, New Zealand, Japan and Indonesia to join the initiative, Howard said in a statement.

"We will also work with international organisations including the World Bank, and businesses, to reduce emissions from deforestation and to sustainably manage the world's forests."

Foreign Minister Alexander Downer said he had discussed the plan with several of the other potential contributors to the fund.

"The sense I've had from the governments we've discussed this with is that they're very enthusiastic and positive about the idea," Downer told reporters.

"We are planning to put together an officials level meeting, in particular with the donor countries in the next three months."

While welcoming the funding, the environmental group Greenpeace said it would make more sense for Australia to sign the Kyoto Protocol, which includes a framework for helping developing countries avoid deforestation.

The government also needed to work harder to prevent illegal timber entering Australia, said Greenpeace spokesman Stephen Campbell.

"Over the five-year life of the government's proposed 200 million (Australian) dollar fund, Australia will import 2.0 billion worth of illegal timber," he said in a statement.

Australian Conservation Foundation spokesman Don Henry also urged the government to sign the Kyoto Protocol, saying it was "driving billions of dollars into helping Indonesia and China tackle climate change."

Howard has frequently expressed scepticism about global warming, but recently softened his stance as an election looms later this year and opinion polls show widespread public concern about the issue.

But his government still refuses to ratify the Kyoto Protocol on the grounds that it does not commit developing countries to the same greenhouse gas restrictions as those imposed on industrialised nations.

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