The decision to allow William Walker to stay temporarily came after a week of tension and the build up of Nato forces in the wake of the Racak massacre of more than 40 ethnic Albanians in the province.

However, US State Department spokesman James Rubin said Yugoslav President Slobodan Milosevic must do more, and Nato was continuing to consider further action against Belgrade over Kosovo.

The BBC's Ed Campbell: "William Walker always said he was staying"

Speaking after the US's Kosovo envoy held four hours of talks with Mr Milosevic, Mr Rubin said: "We do not consider this problem resolved. On the contrary, we continue to consult with Nato allies about next steps."

It has also emerged that President Bill Clinton and UK Prime Minister Tony Blair have agreed in a telephone conversation that more had to be done to find a political solution to Kosovo - even if it means using force.

Mr Milosevic has temporarily lifted expulsion order

"They agreed that Slobodan Milosevic must be brought back into line," a government spokesman said in London.

"They reviewed the preparations on the military side, should the military option prove necessary," the spokesman said.

Belgrade said that Mr Walker - head of the OSCE's (Organisation for Security and Co-operation in Europe's) mission in Kosovo - would be allowed to continue his work subject to the outcome of an investigation.

He was ordered to leave after accusing Serb forces of killing the villagers in Racak in cold blood.

The agreement was clinched by OSCE head Knut Vollebaek after the unsuccessful meeting between Mr Milosevic and the US team.

The US talks ended with President Clinton's special envoy James Pardew saying that Mr Milosevic remained "inflexible" on all demands, including that he sharply reduce the Serb military action against the Kosovo Liberation Army - the ethnic-Albanian rebels seeking independence.

Mr Walker is staying in Kosovo

The US is sending a representative to London for a meeting of the six-nation Contact Group which is leading diplomacy in the Balkans. The group is made up of the US, the UK, Russia, France, Italy and Germany.

An independent team of Finnish forensic scientists is carrying out post-mortems on the Racak dead in an effort to establish whether they were victims of a gun battle, as Yugoslav authorities have asserted, or were killed in cold blood.

Their work, expected to take up to 10 days, comes after Serb pathologists said their examinations had revealed no evidence of torture or summary execution.

The OSCE has blamed Serb security forces for the Racak killings, but it has also accused the KLA of knowingly firing on its vehicles, wounding two monitors.

Nato on alert

Nato aircraft are on 48-hour alert, while UK and US warships, including the USS Enterprise aircraft carrier, are moving in to the Adriatic Sea off the coast of the former Yugoslavia.

US Secretary of State Madeleine Albright has warned that the Racak massacre "had brought tensions to a razor's edge".