By Hugh Bronstein

BOGOTA, July 27 (Reuters) - Colombia's second biggest guerrilla army said on Friday it broke off government peace talks without clinching an expected cease-fire deal, but negotiations will resume in a month.

The latest round of talks, held in Cuba, ended in a "difficult environment," according to a statement posted by the National Liberation Army, or ELN, on its Web site.

The negotiations, which started in 2005, had been expected to yield a preliminary peace accord by the end of this month.

But discussions stalled over the government's demand that the ELN identify its troops and concentrate them in one area as part of the deal, Colombia's chief negotiator Luis Carlos Restrepo told local radio.

"It is impossible to move the process forward if the ELN insists on remaining a clandestine organization," Restrepo said.

Talks are set to resume in late August.

"The ELN clearly stated at the negotiating table that it will not demobilize, disarm or concentrate its troops based on demands from the government," the ELN statement said.

The 5,000-member rebel army started its communist insurgency in the 1960s along with the bigger Revolutionary Armed Forces of Colombia, or FARC, which refuses to meet with the government of President Alvaro Uribe, a conservative.

Both groups, branded terrorists by Washington, finance their operations with kidnapping for ransom, other forms of extortion and Colombia's multibillion-dollar cocaine trade, according to the government.

Thousands of people are killed in the guerrilla war every year while tens of thousands are forced from their homes by violence between illegal militias and government troops.

The conflict involves right-wing paramilitaries formed by cattle ranchers, drug lords and other rich Colombians trying to protect themselves from rebel kidnappings and land grabs. Thousands of "paras" have demobilized in separate peace talks.

Uribe, whose father was killed in a botched FARC kidnapping in the 1980s, says the rebels must disarm or face military defeat. He won re-election last year based on tough security policies that have cut crime and sparked economic growth.

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