A statement said Mr Milutinovic would chair the discussions himself in the provincial capital Pristina and that he had invited representatives from the United States, Russia, China and Austria - the current holder of the European Union presidency.

"All conditions are in place for a direct meeting and for a discussion to find a political solution for Kosovo problems," Mr Milutinovic was quoted as saying by Yugoslav media.

Ethnic Albanian leaders, who have rejected several such invitations in the past, had no immediate response.

The BBC's Jeremy Cooke in Kosovo reports on the task ahead of the international observers

Belgrade has withdrawn large numbers of security forces from Kosovo and agreed to international monitors entering the province.

But correspondents say the latest Serbian proposal makes clear that Belgrade wants greater control of what has up to now been an American-led peace process for Kosovo.

Observers' car under fire

Western officials have raised new concerns about the safety of peace monitors in Kosovo after a Yugoslav army vehicle fired a machine-gun burst over a car containing US diplomatic observers on Sunday.

The Organization for Security and Co-operation in Europe (OSCE) leading for the international verification mission says the observers' car was clearly marked.

Separatist KLA soldiers mourning the death of a comrade

There were no injuries, but the incident prompted OSCE to demand an explanation from Serb and Yugoslav authorities.

"This type of behaviour and activity is totally unacceptable," said OSCE spokesman Duncan Bullivant. "Random firing is not in the spirit of the ceasefire agreement."

The shooting incident highlights concerns raised by international officials earlier that the ground verification force, of as many as 2,000 unarmed monitors, is vulnerable to Kosovo unrest despite Yugoslav President Slobodan Milosevic's assurances.

Nato plans to station a rapid reaction force in the neighbouring former Yugoslav republic of Macedonia as back-up security for the monitors.

US envoy William Walker, who arrived in Kosovo last week to head the verification mission, is due to voice the concerns when he meets Mr Milosevic on Monday.