The Marshall Islands' failure to approve long-term US use of a missile testing range threatens a treaty that provides nearly two-thirds of the country's annual budget, the US ambassador said.

Speaking Thursday on the eve of ending his term, ambassador Clyde Bishop said the continued use of the Reagan Test Site at Kwajalein Atoll was crucial to the Compact of Free Association between the two countries.

Agreement by the local landowners for a new lease was "like the string in a sweater."

"You pull it out and the whole thing unravels," he warned.

The compact provides the Marshall Islands with about 70 million US dollars annually through to 2023 and gives islanders visa-free access to the US.

"If, for some unimaginable reason, the military use and operating rights agreement is abrogated, it will have the effect of a snowball rolling down the hill," Bishop said.

"The US economic presence here is significant. To remove it will cause an economic crisis."

There has been a long-running dispute between traditional landowners of Kwajalein and the US over rental increases for a new lease agreement lasting until 2066.

A deadline passed late last year to resolve the dispute and the US government has granted an extra five years to find a solution.

But Bishop warned if there is no sign of progress, the US government could reassess its position sooner.

"No one wants for this issue to result in creating instability in other areas of the compact," said Bishop, who has spent 2 1/2 years as ambassador.

"That is not to the benefit of either nation. But I'm sometimes concerned that it is a possibility."

Landowners of Kwajalein have demanded 19 million dollars annually in rent, while an agreement signed by both governments in 2003 provided for rent now worth 17 million dollars after adjustment for inflation.

The leading traditional chiefs for Kwajalein rejected the 2003 deal and say if the US does not improve its offer, the US use of the atoll will end in 2016, when the current lease expires.

But Bishop said the rent is not up for renegotiation.

The US has used Kwajalein as a military installation since taking it from Japan in World War II. It was converted to a missile testing range in 1964 and islanders were relocated to accommodate the testing.

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