Security officials have voiced fears that Prime Minister Yingluck Shinawatra will try to formalise peace talks with southern separatists during her visit to Malaysia this week.
Ms Yingluck will travel to Kuala Lumpur to discuss Thailand's request for help to solve the violence in the South.
National security sources say former prime minister Thaksin Shinawatra, Ms Yingluck's elder brother, has been heavily involved in pushing for a peace deal with southern separatists.
He is reported to be trying to broker a peace deal with insurgent leaders.
If such a deal were to be signed, it would be a "nightmare" for all, a source said.
"It is unthinkable that secretary-general [of the National Security Council] Paradorn Pattanatabutr would be signing an agreement with southern separatists with Malaysia witnessing," one source said.
- Abhisit urges: Talk with PULO
Malaysia would stand to benefit from the deal, with Prime Minister Najib Razak desperately seeking a poll boost in the leadup to a general election, the source said. But the position of the Thai government would be weakened.
The government's standing policy has been to not recognise the Muslim separatist movement in the far South. Successive governments have also refused to enter into any formal negotiations with insurgents, although officials have admitted recently that informal peace talks have been held.
By signing an agreement with separatist leaders, however, the government would be breaking policy by formally acknowledging their status, the source said.
The push for a peace agreement began at a recent meeting between Deputy Prime Minister Chalerm Yubamrung and Mr Najib in the Malaysian capital.
The foreign ministries of both countries have since been negotiating on a draft agreement.
Malaysia wants a formal document specifying Thailand's desire to have Malaysia play a mediating role in the conflict.
The security sources said Malaysia was also pushing for Thailand to label the southernmost provinces "autonomous" or "special administrative areas". Thailand has so far refused this request.
Pattani United Liberation Organisation (Pulo) president Kasturi Mahkota called for southern "autonomy" on a TV Channel 3 news programme over the weekend, which sources say could be a hint of these negotiations.
The Council of State suggested the government demand a promise of three "Nos" from Malaysia in the document _ no support for separatism, no support for violence, and no provision of a safe haven to insurgents, the sources said.
Pattani senator Anusart Suwanmongkol said public consultations were needed before any deal was reached with Malaysia.
The government should be more transparent about what was going on in the South, he said.
He did not believe there would a major deal signed during Ms Yingluck's trip to Kuala Lumpur.
Mr Anusart said many people now supported a peace dialogue, but negotiations needed to take into account the interests of the people living on the ground.
"Mr Najib is a lame duck PM as the election looms large, and it would be more appropriate to talk after a new leadership is formalised or he is formally re-elected," Mr Anusart said.
Meanwhile, Defence Minister Sukumpol Suwanatat dismissed Pulo's call for autonomy, saying it would be unconstitutional.
However, he refused to elaborate until he received more details.
"Pulo is just trying to convince people that it's still powerful, but actually it has no armed force and no role in the three southern border provinces," 4th Army commander Udomchai Thammasaroraj said Monday.
When asked about Mr Kasturi's comment that the Thai government was not sincere about wanting peace talks, he said the only people who were not sincere were the insurgents.
"When four militants were turning themselves in to authorities, there were people trying to convince them not to surrender. So who's not sincere?" Lt Gen Udomchai said.
A security source said Mr Kasturi was trying to carve a role of himself as a negotiator with the government.
The Southern Border Provinces Administrative Centre and the National Security Council were trying to open a dialogue with insurgent groups, apart from the Pulo.
About the author
Writer: Achara Ashayagachat & Wassana Nanuam