The "unpalatable fact" is that public confidence in the judiciary has been eroded, Chief Justice Dzaiddin Abdullah was quoted by several Sunday newspapers as saying.

"This negative perception had held up the country's development as multinational corporations and foreign investors are reluctant to invest because they perceive there is no level playing field in the courts," he said.

"They prefer arbitration outside Malaysia in the event of disputes."

Dzaiddin has made a series of unprecedently frank comments about the judiciary's shortcomings since he took office last month. His appointment was warmly welcomed by local lawyers.

He made his comments Saturday in a press statement after his first official meeting with 71 senior judges.

Dzaiddin, 63, urged the judges to be "ethical and honest and decorous inside and outside the court."

He added: "Any criticism against any one of us is a reflection on the judiciary as a whole. It is my mission to bring the judiciciary back to its past glories."

Malaysia's judiciary has come in for strong international criticism in recent years, especially over the handling of the cases against ex-deputy premier Anwar Ibrahim.

In April last year four overseas legal organisations including the International Bar Association said in a report there were "well-founded" concerns about judicial independence.

Dzaiddin succeeded Eusoff Chin, who had attracted controversy after his holiday meeting with a leading local lawyer some years ago was publicised on the Internet.

Eusoff denied any wrongdoing over what he called a chance meeting with V.K. Lingam during a holiday in New Zealand in 1994. He insisted he paid for his own holiday.

A minister last year criticised the socialising as inappropriate but the attorney-general's department later said it found no evidence of any misconduct by Eusoff.

The Star said Saturday's meeting was also intended as a farewell party for Eusoff but he did not turn up.

Dzaiddin, whose first job was as a tabloid newspaper reporter, promised to improve relations between judges and lawyers and proposed a training programme for judges.

He also promised action to reduce a backlog of hundreds of thousands of civil and criminal cases awaiting hearing.

Lim Kit Siang, chairman of the opposition Democratic Action Party, said last week Dzaiddin's challenge was to restore a truly independent judiciary.

"For the past 12 years, the Malaysian system of justice became a national and international scandal because it was seen as an engine of oppression and denial of the rights of the people," Lim said in a statement.

Lim was referring to the controversial sacking of the then-top judge in 1988 for alleged misconduct following clashes with Prime Minister Mahathir Mohamad.

Mahathir's former deputy Anwar, who was sacked in 1998, is serving a total of 15 years after being convicted of abuse of power and sodomy in separate trials which were widely criticised overseas.

Anwar says he was framed in a conspiracy masterminded by Mahathir, an accusation which the government denies.