The eight Yugoslavs were taken hostage on Friday when Kosovo Liberation Army forces attacked a convoy carrying rations to troops stationed in the field.

The deal to free the soldiers was announced by the head of the Organisation for Security and Co-operation in Europe, Knut Vollebaek.

"We have had positive results. We have reached an agreement with the KLA on an early release of the detainees," he said.

He refused to elaborate on details, including when the soldiers would be freed and whether any ethnic Albanian prisoners would be exchanged for them.

On Monday he warned that the crisis could lead to a major conflict.

The kidnapping prompted the Yugoslav Government to send army units to the region.

Mr Vollebaek met Yugoslav President Slobodan Milosevic on Monday and secured an agreement to extend the deadline after which the army might use force to free the soldiers.

It was thought that news of the shooting dead of a prominent ethnic Albanian in the provincial capital Pristina could hinder the negotiations.

Enver Maloku, who was head of the Kosovo Information Centre and a close associate of the ethnic Albanian political leader, Ibrahim Rugova, was shot outside his home and died later in hospital.

Before the news of the shooting a senior representative of the KLA had said some of the eight soldiers could be released by Tuesday.

Bardhyl Mahmuti, who speaks for the KLA in Europe, called for the Serbian authorities to release some of the ethnic Albanians they are holding in return.