"Having made their final review, the leaders decided to start their fully fledged negotiations on September 3, 2008 under the good offices mission of the UN secretary general.

"The aim of fully fledged negotiations is to find a mutually acceptable solution to the Cyprus problem, which will safeguard the fundamental and legitimate rights and interests of Greek Cypriots and Turkish Cypriots," Zerihoun said, reading a joint statement on behalf of the two leaders.

The referendums would be held in the Turkish Cypriot northern sector and the Greek Cypriot south.

A similar vote on a peace plan drawn up by Kofi Annan, the former UN secretary general in 2004, drew a resounding 'yes' from the north but was strongly rejected by the south.

Friday's talks followed intensive diplomatic moves to end the division of the island which arose when Turkish troops invaded the northern part of the island in in July 1974 in response to an Athens-engineered coup aimed at uniting the island with Greece.

The lack of a Cyprus settlement is viewed as a major stumbling block to Turkey's European Union ambitions.

Ban Ki-moon, the UN secretary general, wants to see direct negotiations start soon, and has named Alexander Downer, Australia's former foreign minister, as his special envoy for Cyprus.

The two leaders' statement said: "As a reflection of the heightened engagement, the leaders have agreed to establish a secure hotline to facilitate direct contact between them."