A small group of islands in the South Seas has increased its GDP by 10 per cent and secured internet access for all its citizens after making a deal to sell its domain names.

Tokelau, which measures five square miles and has a population of just 1,500, has struck a deal with Dutch firm Dot TK to market its domain name. In return the islands get a share of the profits and satellite internet access.

"At the Icann meeting in New Zealand, Joost Zuurbier of Dot TK met with the ministers of Tokelau, and Tino Vitale, the general manager of Teletok, Tokelau's telecoms company," said Dot TK on its blog.

"It was decided that with funding from Dot TK, through the Foundation Tokelau, an upgrade of satellite capacity will be furnished."

The islands currently have an expensive 300Kbps satellite connection. By using other satellite providers, a low-cost alternative will be sought to provide a 1Mbps connection for all 94 computers on the islands.

The .tk domains will be given away free but the pages will run adverts which generate funds. Currently the bulk of the island's income comes in the form of aid from New Zealand.

There are currently 1.6 million registered .tk domains and the profits have increased the number of computers on the islands from 12 to 200.

Staff at hospitals can exchange information with overseas doctors, and administrators on the three islands now meet via teleconference.

However, there have been some losers in the deal. The state telecoms company reports that revenues are down 40 per cent because the islanders are now using internet telephony instead.