Mr Thaksin and Hun Sen are good friends and golf partners
Fugitive former Thai Prime Minister Thaksin Shinawatra has flown to Cambodia to take up a job as economic adviser to the government.
The move has deepened a diplomatic rift with Thailand, where Mr Thaksin faces a jail term for corruption if he returns.
Cambodian leader Hun Sen offered Mr Thaksin the advisory post on the eve of a regional summit hosted by Thai Prime Minister Abhisit Vejjajiva.
The Thai government has expressed anger and embarrassment over the deal.
Thaksin Shinawatra arrives in Cambodia
Having already withdrawn its ambassador from Cambodia, the Thai cabinet has now agreed to scrap joint plans for trade and oil exploration.
Ties between Cambodia and Thailand have also been tense recently due to a series of disputes around a cross-border temple complex.
Mr Thaksin landed in a small private plane and was then escorted into the Cambodian capital Phnom Penh by a convoy of cars under tight security.
"Thaksin is now in Cambodia. He flew in on a special flight and just landed at the military airport," said Khieu Kanharith, Cambodian information minister and the top government spokesman.
"We are looking forward to learning from Thaksin's great economic experience and we are convinced that his experience will contribute to our country's economic development," he said.
Mr Thaksin, a former telecoms billionaire, is in self-imposed exile and spends much of his time in Dubai.
He is scheduled to give a lecture on Thursday to 300 economists at the ministry of finance.
Thailand's government is outraged at the Cambodian move, and at Cambodia's apparent rejection of Thailand's judicial imperative to send Mr Thaksin to jail.
The tycoon was sentenced in absentia to two years in a Thai jail in a conflict of interest case.
The Thai government and its supporters also fear that Mr Thaksin could use his new home just across the border as a campaign base.
Mr Abhisit's government was appointed after defections in parliament followed a period of military rule since the coup in 2006 which deposed Mr Thaksin.
Thailand recalled its ambassador from Cambodia after Phnom Penh said it would refuse to extradite the tycoon because it considered him a victim of political persecution.
A government spokesman told the BBC that Cambodia valued Mr Thaksin's leadership qualities and business experience, and that he would be an asset to the country.