A Muslim separatist group and the Philippines government have resumed peace talks in Malaysia aimed at breaking a deadlock over the economic control of land, rebels and officials said today.

The Moro Islamic Liberation Front (MILF) is seeking economic control over a proposed fragmented Muslim homeland in the southern region of Mindanao and the Sulu Archipelago.

Philippine President Gloria Arroyo's chief advisor on the peace process, Jesus Dureza, said the demand for territory remained the most important issue in peace negotiations with the MILF.

"Our negotiating panel is there in Malaysia. They will be discussing the issue of ancestral domains, that is the main item," Dureza told AFP from Manila.

The Philippine government has proposed official recognition of Muslim claims over some 600 villages and towns, while the MILF has tabled a list of more than 1,000.

At stake are entitlements by the large Muslim minority in predominantly Roman Catholic Philippines to a share in the earnings from natural resources in the areas.

Talks are scheduled to continue in an undisclosed location in Malaysia until September 9. Negotiators for both parties in Malaysia were not immediately available for comment.

'The thorniest issue'

The issue of ancestral domain, once resolved, will form part of a final peace pact, Dureza said, but cautioned there were "still a lot of things to work on" before a final peace accord could be reached.

MILF spokesman Eid Kabalu earlier told AFP the group remained hopeful some agreements on ancestral domain could be reached in Malaysia, but acknowledged it was "the thorniest issue" in negotiations.

The two panels will issue a joint communique if they reach a substantial agreement after the talks end in Malaysia, Dureza said.

The 12,000-strong MILF has been waging a separatist rebellion for an Islamic state in Mindanao since 1978, when it split from the larger Moro National Liberation Front (MNLF).

The MNLF signed a peace deal with Manila in 1996, dropping its separatist ideology for limited self-rule.

The MILF and the smaller and more extreme Abu Sayyaf group were left out of that accord.

Arroyo signed a truce with the MILF in 2001 and later engaged the rebels in negotiations with an aim of signing a final accord this year.