The result means very little as both sides are unable to qualify for the semi-finals. Thailand and Vietnam have already qualified in the group.
Timor opened the scoring in the 22nd minute through Alves Ima Kefi Frangcyatma.
The equaliser came five minutes later thanks to Bounthavy Sipasong and the score remained 1-1 going into the half-time break.
A goal a minute after the restart by Phoutthasay Khochalern gave Laos the lead and they scored again in the 67th minute through Khonesavanh Sihavong to make the score 3-1.
In the 90th minute Timor pulled a goal back through Da Cruz Martins to end the game 3-2 in favour of Laos, giving them their second win.
In the remaining group fixtures Vietnam face Thailand on June 10 and Laos are up against Malaysia on June 11.