Doha: Qatar, in a move that could impact Australia, has announced plans for a steep rise in liquified natural gas production, suggesting it is ready for a protracted dispute with Gulf neighbours.

But the country says it's doing all it can to reach an agreement with four Arab nations. Saudi Arabia, the United Arab Emirates, Egypt and Bahrain were due to meet on Wednesday to decide whether to continue sanctions they imposed on Qatar on accusations it was aiding terrorism and courting regional rival Iran.  Qatar denies the charges and has submitted to mediator Kuwait replies to 13 demands that the gathering will consider.

Then it mounted what appeared to be a show of strength on Tuesday, when the state-owned Qatar Petroleum announced plans to raise liquefied natural gas capacity by 30 per cent.

The immediate effect of the planned production rise will be to worsen a glut on the LNG market where Australia, the United States and Russia vie.

"What Qatar has given in goodwill and good initiative for a constructive solution, based on dialogue, we believe should be sufficient [to show] we have carried out our duties from our side," Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman al-Thani told a news conference in Doha.

"There is a lot of progress that has been made on that front [countering terrorism financing]... but of course there is always room for improvement," he said, describing the sanctions as illegal steps under the pretext of fighting terrorism.

German Foreign Minister Sigmar Gabriel said he expects a Saudi-led alliance to reject Qatar's response to its conditions for ending the month-long crisis in the Gulf, after he held two days of talks with officials from both sides.

Gabriel said he believed that Qatar deserved a fair reply and that he hoped the allies would act reasonably. In comments translated from German, he urged dialogue to resolve the spat. 

The three Gulf states and Egypt have severed diplomatic and transport ties with Doha in a dispute that has raised concern across the Middle East and beyond. Western states fear a lengthy dispute, besides threatening political instability, could upset supply chains in a region vital for energy supplies.

Qatar denies the charges and has said the 13 demands - including downgrading ties with Iran, ending Turkey's military presence in the country, and shutting the Al-Jazeera media network - were deliberately made so steep that they would be rejected. The four allies initially gave Qatar until Monday to respond and then extended the deadline by 48 hours. Their foreign ministers are set to meet on Wednesday in Cairo to discuss the latest developments.

Gabriel held talks with UAE Foreign Minister Abdullah bin Zayed al-Nahyan earlier on Tuesday, after a Monday meeting with his Saudi counterpart, Adel al-Jubeir.

Qatar's response was "in line with the general principle of preserving sovereignty" and not interfering in the internal affairs of other countries, al-Thani said in the press conference. He declined to give details of his country's offer and again rejected claims that Qatar funded terrorist groups.

Qatar has said it was ready to meet any "reasonable" demands.

But the Gulf state, with a population of just over two million to Saudi Arabia's 31 million, is reluctant to carry out conditions it considers impinge on Qatari sovereignty.

The Saudi Ambassador to Sudan Ali Hassan Jaafar, speaking at a news conference, said he hoped the Gulf crisis would end "in the coming hours" with the Qatari response to demands.

"We wish well for the people of Qatar and we hope that the rulers of Qatar return to their senses," he said. "We want stability in the Gulf region and in the Arab region. ... If these demands are not fulfilled we will defend our security and stability and there will be other measures."

Some experts say that, while the Gulf States accuse Qatar of cooperating too closely with Iran, their sanctions could push it to closer cooperation with Tehran on gas production and exports from a shared gas field.

Reuters, Bloomberg