By Telly Nathalia

JAKARTA, March 3 (Reuters) - An East Timor army fugitive who led a revolt that plunged the tiny nation into chaos last May said on Saturday he was willing to negotiate with the government but would not surrender to troops surrounding his hideout.

President Xanana Gusmao has ordered security forces to arrest Alfredo Reinado who has been on the run since he escaped from jail in East Timor's capital Dili in August along with 50 other inmates.

The arrest order came after Reinado allegedly led a raid on a police post and made off with 25 automatic weapons last month. Reinado denied attacking the police post, saying that police had given him the weapons.

"I am the one who proposed solving this problem through negotiation and dialogue," Reinado told Reuters by telephone.

"I always say don't use weapons to solve a problem because it cannot have good results but will only take lives and disturb state security."

He said the attorney general met him on Friday at his hideout where he sent his message to the government. He did not give details.

"I will only surrender to the law, not to any international power," Reinado said.

"I will not surrender for the president and prime minister's interest. I will surrender only for the peoples' interest."

He said in a text message that Australian troops were preparing to launch an attack late on Saturday. There was no confirmation from the troops, which have encircled his hideout.

"We are on alert to face any kind of attack," Reinado said.

Australia maintains 800 peacekeeping troops in East Timor, following last year's violence.

Reinado has made several public appearances since the prison break, including a meeting with the country's military chief. Security forces did not attempt to arrest him.

The standoff between Reinado and the troops raised fears of violence ahead of a presidential election next month.

At the request of East Timor, Indonesia temporarily has closed its border with East Timor to prevent Reinado and his group sneaking into Indonesian territory.

Australia has warned of increased violence ahead of the poll after clashes between its peacekeepers and East Timorese refugees left two civilians dead last month.

East Timor voted in a 1999 referendum for independence from Indonesia, which annexed it after Portugal ended its colonial rule in 1975. The country became fully independent in 2002 after a period of United Nations administration.

An east-west divide in the impoverished nation erupted into chaos and gang violence in May following the sacking of 600 soldiers. The country is plagued by High youth unemployment and more than 100,000 people are displaced.

AlertNet news is provided by