Kenya and South Sudan governments have signed an agreement that will allow for the construction of an oil pipeline connecting the two countries.

A statement from (Kenya’s) Prime Minister Raila Odinga’s office issued in Nairobi on Wednesday said the agreement which was reached late Tuesday will allow the construction of an oil pipeline and fibre optic connections between the oil fields in the world’s newest country and Kenya’s port town of Lamu.

"The pipeline will be developed through Kenyan territory and will be built and owned by South Sudan. The two countries will negotiate and agree on transit fees for the oil pipeline,” the statement said.

"The agreement signed in Juba on Tuesday  and witnessed by (Kenya’s) Prime Minister Raila Odinga and the President of South Sudan Salva Kiir will allow the development of an oil pipeline and fibre optic connections between the oil fields in South Sudan and the Kenyan port town of Lamu,” the statement said.

The latest deal comes as South Sudan begun shutting down its oil pipeline that runs through Sudan to the export terminal along the Red Sea coast worsening tensions between the two countries.

The closure followed South Sudan’s persistent oil row with Sudan. South Sudan’s Council of Ministers last week directed the Petroleum and Mining minister Stephen Dhieu Dau to execute the decision immediately.

The decision comes in the wake of deteriorating relations with Sudan, with South Sudan accusing her northern neighbour of stealing its oil destined to potential buyers overseas and constructing a secret pipeline to divert her oil.

South Sudan, which broke away from Sudan last July to form the world’s newest country, must pump its oil through Sudan’s pipelines.

However, the two countries have never agreed on the transit fees that South Sudan should pay Khartoum. Odinga on Tuesday said quick resolution of the dispute over oil pipeline was good for the region which needs peace in order to develop.

"The region needs peace for economic development,” he said in a brief statement before he left for Juba. 

Xinhua