Thaksin Shinawatra (File image 13.9.08) Mr Thaksin remains a highly divisive figure in Thailand
Cambodia has responded to Thailand's recall of its ambassador from Phnom Penh, by recalling its ambassador from Thailand hours later.
Thailand's recall was in anger over Cambodia's offer of an advisory post and a home in Cambodia to former Thai Prime Minister Thaksin Shinawatra.
Mr Thaksin was sentenced in absentia in a Thai court for conflict of interest.
The neighbouring countries have recently been in dispute over ownership of a temple near their border.
When Cambodia's Prime Minister Hun Sen first announced his welcome to the self-exiled fugitive Thaksin, Thailand's current Prime Minister Abhisit Vejajiva was about to host a regional summit of the Association of South-East Asian Nations - of which both Cambodia and Thailand are members.
Neighbours
Thai government figures told reporters Cambodia would have to choose between friendship with Mr Thaksin and friendship with Thailand.
This week's announcement by Phnom Penh of a job as economic advisor for Mr Thaksin ramped up the bad feelings across the border.
A few hours after Thailand withdrew its ambassador from Cambodia as a "first diplomatic retaliation", as Mr Abhisit put it, Cambodia responded.
Deputy Prime Minister Sok An said Cambodia was withdrawing its envoy from Bangkok as a "temporary measure" until Thailand sent its envoy back to Phnom Penh.
Thailand has said it is reviewing aid projects but keeping the border checkpoints open, while Cambodia says its recall would not affect trade or raise tensions along the border.
Soldiers from both countries have engaged in sporadic fighting along their shared northern border where ownership of the Preah Vihear temple is claimed by both countries.
The twice-elected Thaksin remains a hugely influential figure in Thailand, and the current Thai government has said it would try to extradite him from Cambodia if he set up residence there - a request Cambodia has said it would reject.
Thailand's Mr Abhisit defended his decision to recall the ambassador and said the Cambodian government had "intervened in Thai justice" and hurt the feelings of the Thai people.
"I believe Thailand and Cambodia still want to be good neighbours, but once these problems happen, we need to respond," he told reporters.
Since the 2006 coup which deposed Mr Thaksin, both supporters and opponents of the former telecommunications mogul have repeatedly taken to the streets of Bangkok in large protests, some of which have turned violent.
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