VH-LIH was tracking out of Albury for Sydney and was cleared to climb to flight level 120. VH-FNE was inbound for Albury, from Sydney, initially maintaining flight level 230. Because one of the radar stations was out of service the radar coverage in that area was unreliable and procedural separation was employed. The crew of VH-FNE were given descent to flight level 120, in error. The air traffic controller had intended to descend VH-FNE to flight level 130. The crew of VH-LIH requested a clearance to climb to a higher level. This was not allowed as the controller mistakenly believed that VH-FNE was at flight level 130. The controller gave both crews traffic information on each other and asked them to report sighting and passing each other. In response the crew of VH-FNE told the controller they had been cleared to flight level 120, were currently at flight level 126 and were climbing back to flight level 130. Following discovery of the error in giving VH-FNE flight level 120, this aircraft was maintained at flight level 130 until it had passed VH-LIH. Significant Factor The following factor was considered relevant to the development of the incident: 1. Incorrect level clearance issued by the air traffic controller.