SARAJEVO, June 8 (Reuters) - Bosnian Serb leaders have agreed to remove an Orthodox church built in a Bosnian Muslim woman's courtyard after she was driven out by Serb forces who killed 22 of her relatives in nearby Srebrenica.

The deal came out as a result of the meeting late on Friday between Serb Republic Prime Minister Milorad Dodik and the regional Bishop Vasilije Kacavenda.

It should put an end to years of legal battling by Fata Orlovic, who escaped the 1995 Srebrenica massacre in which she lost 22 relatives and returned to the village of Konjevic Polje in 2002 to find the large church 30 metres from her front door.

"We have decided to move the church and find a new location for it in coming weeks," Dodik said in a government statement.

In 1993, Serbs drove all Muslims from Konjevic Polje to nearby Srebrenica, a U.N. "safe area" which they overran two years later, massacring up to 8,000 Muslims.

While Orlovic was in exile the Serb authorities appropriated her land and built the church for Serbs who had fled there from their own homes in Muslim and Croat areas.

This was common practice across the Balkan country, where churches, mosques and whole new communities have sprung up in what Western peace officials condemn as a tactic to preserve the results of ethnic cleansing.

"If this church is the only problem in Bosnia than we can easily solve it," Bishop Kacavenda said, despite years of resistance and complaints by the Orthodox church that such a move would be an attack on the freedom of religion.

Bosnian refugees who decided to return to their prewar homes first had to prove they owned the property and then evict anyone who had moved in. Orlovic engaged the lawyer herself to help her move the church from the yard.

Orlovic's fight over the church ignited ethnic tensions. Serb villagers accused her of spreading ethnic and religious hatred by trying to prevent religious rites there but the local court in Srebrenica acquitted her of charges.

Her situation highlights the myriad problems faced by hundreds of thousands of people who fled ethnic cleansing in Bosnia's 1992-95 war and now want to return.

Bosnia top peace overseer Christian Schwarz-Schilling welcomed the announcement of the church relocation.

"Rapid resolution of such outstanding issues in an orderly and dignified manner...helps build a virtuous cycle of trust and this positive momentum is critical to restoring confidence among the peoples," he said in a statement.

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