JUBA/NAIROBI South Sudan said on Friday it could withdraw its troops from an economically vital oilfield on the border with Sudan which it seized on Tuesday if the United Nations deployed neutral forces in the area.
Fighting between Sudan and South Sudan this week has brought the two closer to a resumption of full-blown conflict after the south seceded last year under a peace deal that ended decades of civil war between north and south.
South Sudan was widely condemned for taking the oilfield and Sudan has vowed to retaliate if it does not withdraw. The African Union denounced the occupation as illegal and urged the two former civil war foes to avert a "disastrous" war.
Heglig, which the south claims as its own, is vital to Sudan's economy because it has a field accounting for about half of its 115,000 barrel-a-day oil output. The fighting has stopped production there, officials say.
Speaking in Nairobi, Pagan Amum, South Sudan's lead negotiator at talks to resolve the dispute with Sudan, said his country was ready to withdraw under a U.N. mediated plan.
"On the ground, we are ready to withdraw from Heglig as a contested area ... provided that the United Nations deploy a U.N. force in these contested areas and the U.N. also establish a monitoring mechanism to monitor the implementation of the cessation of hostilities agreement," he told reporters.
Amum said there were seven disputed areas and called for international arbitration to end the dispute over these regions.
He said the Heglig facilities were "largely" damaged by fighting, but did not give details.
"Resumption of oil in that area will only come when the U.N. deploy their forces between the two countries and in the disputed areas and when the two countries reach agreement to resume oil production," he said.
Landlocked South Sudan shut down its roughly 350,000 barrel-per-day oil output in January in a row over how much it should pay to export crude via pipelines and facilities in Sudan.
Oil accounted for about 98 percent of the new nation's state revenues and officials have been scrambling for ways to make up for the loss.
In Juba, about 200 people demonstrated at a government-organised protest against Sudan and in support of the occupation of Heglig, holding banners which read: "The people want the army to be in Heglig" and "They bomb children and women".
South Sudan's armed forces (SPLA) spokesman Philip Aguer said the SPLA was still in control of Heglig and said there had not been any further fighting on Friday.
"It (Heglig) is part of South Sudan and under our control. If they want to retake it let them try it. We are ready," he said.
The African Union was helping mediate talks between the two countries over oil payments and other disputed issues, but Khartoum pulled out of the negotiations on Wednesday after Juba seized Heglig.
"The Council is dismayed by the illegal and unacceptable occupation by the South Sudanese armed forces of Heglig, which lies north of the agreed border line of 1st January, 1956," African Union Peace and Security Council Commissioner Ramtane Lamamra told reporters after a meeting late on Thursday.
The U.N. Security Council on Thursday added its voice to the chorus of demands that Sudan and South Sudan stop the clashes. Sudan's U.N. ambassador said South Sudan must heed the call or Khartoum would "hit deep inside the south.
The South seceded from Khartoum's rule last year but the two sides have not agreed on issues including division of the national debt, the status of citizens in each other's territory and the position of the border.
Some 2 million people died in Sudan's civil war, fought for decades over ideology, religion, ethnicity and oil.
(Additional reporting by Aaron Maasho; Writing by Alexander Dziadosz and James Macharia; Editing by Janet Lawrence)