Chile's government dismissed Saturday allegations that members of its military had spied on neighboring Peru, the AFP reported.
"When there are accusations of this type, governments must exercise caution," warned a Chilean presidential spokeswoman, denouncing the espionage claims against two Chilean military officials.
"We want to be clear: Chile does not spy," insisted spokeswoman Carolina Toha.
The spat has already forced the cancellation of a meeting in Singapore, Sunday, between Peru's President Alan Garcia and his Chilean counterpart Michelle Bachelet, the AFP said.
A Peruvian court earlier began extradition proceedings against the two Chilean officers, as the government launched an official inquiry, justice officials in Lima said.
The Chileans, identified as Daniel Marquez Torrealba and Victor Vergara Rojas, were allegedly working with an officer of the Peruvian Air Force, Victor Ariza Mendoza, whose detention officials announced on Thursday.
News reports told the AFP that Ariza, who worked in 2002 in Peru's embassy in Santiago, has been charged with "revealing state secrets, money laundering and espionage" on behalf of Chile since September 2005.
Ariza, who reportedly confessed, would have earned 3,000 dollars a month for his involvement in passing on information, prosecutors said.
"I am returning 24 hours earlier than scheduled, so I can obtain complete and sufficient information (on the issue) and to be able to speak from Peru," Garcia said in Singapore at the Asia-Pacific Economic Cooperation (APEC) summit.
"We have to cancel (the meeting with Bachelet) because we are going back to Peru over this issue," Garcia told reporters.
Peru last year brought a claim before the International Court of Justice over territory lost to Chile in an 1879-1883 war, the AFP said. Peru claims an area of about 100,000 square kilometers in the Pacific Ocean that is currently under Chilean control.
For its part, Chile said the maritime border was settled by treaties in 1952 and 1954 that Peru argues were meant to regulate fishing, not demarcate the border.
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