Montenegro has been pressing for a looser and more equal partnership. Its reformist president, Milo Djukanovic, wants greater control of troops on Montenegrin territory and has said the Yugoslav federal army should be reduced in size and modernised.

Members of the two states' ruling parties met in the Yugoslav federal parliament building on Wednesday for an initial round of talks.

After the meeting, the head of the Montenegrin negotiating team, Zeljko Sturanovic, said: "It is our impression that representatives of political parties with whom we held talks today did not have any serious objections to the principles we are proposing."

BBC Belgrade Correspondent Jacky Rowland: "Conflict with Belgrade inevitable"

The Serb independent news agency Beta quoted him as saying: "We have agreed that Yugoslavia finds itself in a serious crisis."

One of the Serbian negotiators, Zivko Soklovacki, hinted at a continuation of the talks.

"As long as there is goodwill on both sides, an agreement can be reached," Mr Soklovacki told Yugoslavia's state news agency Tanjug.

Mr Soklovacki is head of the team of negotiators from the Yugoslav Left party led by the wife of Yugoslav President Slobodan Milosevic.

Yugoslav survival

Yugoslav Prime Minister Momir Bulatovic on his way

Montenegro has said it wants Yugoslavia to survive, but as a looser confederation of sovereign states.

However, BBC Belgrade Correspondent Jacky Rowland says Montenegro's tough demands in the areas of defence, economy and foreign affairs make conflict with Belgrade look inevitable.

Mr Djukanovic has warned that if Belgrade refuses to restructure and equalise relations, Montenegro could go ahead with a referendum on independence within the next six months.

Serb ultra-nationalist Vojislav Seselj enters the talks

Montenegro also wants economic freedom. It has been courting the West in search of foreign investment and there is even talk of a separate currency, to replace the weak Yugoslav dinar.

Mr Djukanovic has also stated his intention to co-operate fully with the International War Crimes Tribunal in The Hague.