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KUALA LUMPUR (Reuters) - Malaysia has agreed with Singapore to postpone the development of a high-speed rail service by two years, Malaysian media reported, as Southeast Asia's third-largest economy looks to review mega projects to cut its massive debt.

Malaysian business weekly The Edge on Saturday cited sources confirming both countries agreed to postpone the project to May 31, 2020 at no penalty to either, to allow Malaysia time to review its finances.

A senior Malaysian minister on Monday confirmed the sides have agreed to postpone the project at no penalty, and that details would be made clear when a new agreement is signed soon.

"We have agreed to a reasonable period," Azmin told reporters at an event when asked how long the project would be postponed, in a recording reviewed by Reuters.

Malaysia's Prime Minister Mahathir Mohamad declared his intention to cancel the project just weeks after leading his coalition to victory in a general election in May.

Azmin said Malaysia is committed to the project, but that it would need to be more affordable.

"We want to continue with this project because it will bring good to both countries," Azmin said. "However, over the course of the postponement we will discuss ways to reduce the cost."

Azmin's office did not respond to requests for details of the postponement.

Singapore's Ministry of Transport declined to comment, referring queries to a Facebook post by its minister, Khaw Boon Wan, in which he said a decision would be announced "soon".

In July, Singapore said it would seek to recover over S$250 million (141.19 million pounds) in costs incurred to date should Malaysia cancel the project.

Mahathir, who launched a review of all multi-billion dollar projects approved by his predecessor, said Malaysia would look to negotiate a deferment of the project to reduce any burden of compensation.

(Reporting by Joseph Sipalan in KUALA LUMPUR and Fathin Ungku in SINGAPORE; Editing by Christopher Cushing)

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Reuters