Secretary general Pado Mahn Sha said Bo Mya, who led the KNU military wing for over two decades, died in a private hospital in the northwest border town of Mae Sot at 2:00 am (1900 GMT Saturday).

He said the military leader had suffered from diabetes for some time.

"Nearly two years ago he was paralysed," Pado Mahn Sha told AFP.

"Two weeks ago, he cannot eat anything," he added.

Bo Mya was head of the KNU military wing from 1976 to 2000, when he stepped down due to ill health. He remained a powerful figure in the KNU until 2004, and even in his final years was an advisor to the rebel group.

Win Min, a Burmese analyst based in Thailand, said many troops in the KNU remained loyal to Bo Mya, but said he did not think the death would have significant impact on the rebels.

"I feel really sad," Win Min told AFP. "He put his whole life in the struggle, and he could not see the result of his struggle."

The KNU is one of the few remaining ethnic insurgent groups yet to sign a peace deal with the junta. Burma, under military rule since 1962, has signed ceasefires with 17 other ethnic armed groups.

Burma's junta and the KNU called a halt to five decades of fighting with an informal pact in December 2003, and a "gentleman's agreement" on an open-ended ceasefire was reached after a second round of talks in early 2004.

However, the junta cancelled a third round of talks, and formal discussions have since fallen apart. A KNU delegation sent to Yangon in September made little progress.

Win Min said another delegation may go to Yangon soon, but he said any talks may be little more than a gesture by Burma's ruling State Peace and Development Council (SPDC) to curry international favour.

Burma is under increasing pressure over human rights abuses and the slow pace of democratic reform, and was recently put on the UN Security Council's formal agenda.

"They may do this to show they engage with the KNU," he said. "It doesn't mean it is going to make a big difference."

Human rights groups accuse Burma's military of launching in February a bloody offensive against the Karen, burning villages and forcing thousands to abandon their homes and flee into the jungle.

New York-based watchdog Human Rights Watch said in a statement last month that 27,000 civilians had been displaced by fighting during a year-long military offensive against the KNU, with at least 45 civilians killed.

"I doubt the SPDC has a good intention to do the ceasefire. If they did they would not have revived the offensive," Win Min said.

Agence France-Presse