Tensions have increased between Australia and New Zealand, with the deadline for the return of Phar Lap’s bones due to expire at 9:00am tomorrow morning.

Prime Minister John Key has said he is not prepared to extend the deadline any further. The deadline had been due to expire today, but Key extended it by another 24 hours.

“We do not want war with Australia,” said Key, “but if they don’t return that horse’s bones then war they shall have.”

Labour leader Phil Goff said his party was fully behind the Government’s position on the return of the bones.

“It is simply unacceptable,” said Mr Goff. “Those lousy sons of convicts have stolen our Phar Lap, and if they won’t give the bones back then we’re coming over to get them!”

Green MP Keith Locke said his party supported the ultimatum.

“We oppose the use of force to resolve international disagreements, except for this one time. Those Australian f**ckers really have it coming to them. Bombs away!”

The crisis began last week, following the return by the Australian government of a box that was supposed to contain the bones of the great New Zealand racehorse. The bones had been loaned out by Te Papa to the Melbourne Museum, on the promise that the bones would be returned in six months.

But when the box was opened staff from Te Papa found only sawdust and a note that read: “Ha ha, this little Aussie beaut is ours now. Bonza!”

The nation’s armed forces have been placed on alert, and army units have been mobilised in all of the main cities.

The Air Force has also been readied, with the squadron of Skyhawks being urgently taken out of storage and readied for combat.

The Navy frigates Te Kaha and Te Mana are currently stationed off the coast of Sydney. There were reports of skirmishes and gunfire between Te Kaha and an Australian vessel earlier today, but these have not been confirmed.

If war is declared it is expected that the two frigates will begin a bombardment of the Australian city.

Sir Walter Ascot-Smith, a retired Rear-Admiral, said he expected the five inch guns of the two ANZAC frigates to have a devastating effect.

“The Australians won’t be taking this threat lightly. A well placed shot from one of those guns could do serious damage. It could even scrape the paintwork of one of the Australian naval ships. The Australians are proud of their ships and won’t want to risk that.”

UPDATE: The Australian Prime Minister Julia Gillard has called for calm, but says the bones will not be returned.

“Look, we don’t want a shooting match with those pipsqueaks over the ditch. Its football finals time, and our people don’t need this distraction.

“We’ve offered a fair settlement, but it’s been rejected. We said that if we were allowed to keep Phar Lap’s bones New Zealand could keep Russell Crowe. That was a concession we were only too happy to make.”

Gunfire was heard in Sydney Harbour shortly after her announcement.