(Adds background, analyst comment)

By William Maclean

ALGIERS, Dec 21 (Reuters) - War may break out again in Western Sahara after an uneasy 16-year peace if U.N.-sponsored talks between Morocco and the Polisario Front independence movement fail, Polisario said on Friday.

A third round of talks to resolve Africa's longest-running territorial dispute are set for Jan. 7-9 in Manhasset, New York.

Polisario said Morocco had a "precious opportunity for a just and definitive peace" in the desert territory of 260,000 that contains phosphates and rich fishing banks and may have offshore oil.

"The Moroccan government will assume the full consequences that would result from the failure of the negotiating process and notably the resumption of military hostilities", Algeria's official news agency APS quoted a Polisario statement as saying.

The declaration came at the end of Polisario's congress in the desert outpost of Tifariti, held every three to four years.

Peacekeepers have watched over Western Sahara since 1991 when the United Nations brokered a ceasefire to end a guerrilla war between Polisario and Morocco, which annexed the northwest African territory in 1975.

Morocco has poured people and money into the area it controls, bordered to the west by the Atlantic and to the east by a defensive sand wall guarded by tens of thousands of its troops and reinforced by landmines.

The ceasefire terms included holding a referendum to let the inhabitants decide their future but it never took place. Rabat now rules out such a vote and has French support for its proposal for only limited self-rule.

"At the same time as blocking various peace plans, Morocco continues to repress and to attack civil populations in the occupied territories with a rare violence...," APS cited Polisario as saying.

It criticised the U.N.'s force of around 220 peacekeepers in Western Sahara for failing to stop human rights violations by Morocco and said France was at fault for encouraging Morocco's "rebellion against international law".

A spokesman at Morocco's foreign ministry said he had no immediate comment.

The Moroccan government has denied mistreating independence activists and says most ethnic Sahrawis are willing to accept its plan to offer them limited autonomy.

POISONED RELATIONS

Polisario is backed by Morocco's rival Algeria and bad blood over Western Sahara has poisoned relations between the two regional rivals and complicated U.S. efforts to improve cooperation among its allies in fighting terrorism.

Independence activists say the Polisario leadership has come under pressure to adopt a more belligerent stance as frustration is running high in the desert camps that house families displaced by the conflict, who remain dependent on aid and cut off from relatives in the Moroccan-held zone.

But analysts said war was unlikely in the near future as neither Algeria nor Polisario's leaders would benefit right now.

"You get these statements from Polisario about armed struggle from time to time," said Jacob Mundy, a Western Sahara specialist at Britain's University of Exeter. "It allows the domestic constituency to vent its frustration." (Writing by Tom Pfeiffer; Editing by Tim Pearce)

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