Many ethnic Kachin people have been displaced by fighting between government troops and Kachin fighters [REUTERS]

Myanmar government peace negotiators reopened talks with Kachin rebels on in a bid to settle a stubborn conflict that could impact tentative Western efforts to lift sanctions on the country.

A government source with knowledge of the talks confirmed that a delegation from the Kachin Independence Army met negotiators in the Chinese border town of Ruili on Thursday to try to thrash out truce terms and end fighting that has displaced an estimated 50,000 people since June 2011.

A deal with the Kachins would clear a major hurdle for the new civilian government in its drive towards "everlasting peace" after decades of stop-start fighting in the ethnically diverse, resource-rich country.

Western nations have made a successful peace process with separatist groups operating in the country one of their main demands for lifting sanctions.

Fighting continues

Preliminary ceasefires have been reached with most of the 16 armed ethnic groups or political organisations that have responded to President Thein Sein's appeal last August for all sides to start dialogue.

The government secured its 12th ceasefire on Wednesday with the Kayah Nationalities Progressive Party in Loikaw, the capital of eastern Kayah State, a mediator told the Reuters news agency.

The peace process has three stages; ceasefire, political negotiations, then a parliamentary conference to ratify agreements. The government has promised to resettle refugees and bring development and foreign investment to ethnically diverse areas.

The fighting in Kachin State is one of the biggest obstacles for the government's ongoing reform drive. Thein Sein and the armed forces chief have instructed troops not to attack the Kachins, but fighting continues unabated and it is unclear which side is driving the conflict.

Hydropower projects

The main sticking point in the six previous rounds of talks has been the Kachins' insistence that "self-determination" be part of the ceasefire agreement, but the government says the issue can only be discussed at the second stage of the process.

Kachin State is also of strategic importance to China and sustained conflict could impact its plans to use the region as a conduit in transporting energy to its southwest provinces.

Construction of twin oil and gas pipeline from the Bay of Bengal, through Kachin State, to China's Yunnan province is already underway and the region is home to several hydropower projects exporting electricity mainly to China.