The remote Pacific island nation of Palau said today that it would accept 17 Chinese Muslims currently held in Guantánamo Bay, opening the way for the biggest transfer of inmates since President Barack Obama promised to close the prison.

The US has yet to confirm the decision, but the president of Palau, Johnson Toribiong, said in a statement that his country had "agreed to accommodate the United States of America's request to temporarily resettle in Palau up to 17 ethnic Uighur detainees".

The US envoy Dan Fried visited the islands last week to arrange the relocation to Palau, which was a UN Trust territory under US administration before becoming independent in 1994. Washington remains a major aid donor, but Toribiong said the decision was made on humanitarian grounds so that the men could start their lives anew in as normal a fashion as possible.

"I am honoured and proud that the United States has asked Palau to assist with such a critical task," he said.

Two US officials, however, told the Associated Press that Washington was prepared to give Palau up to $200m in development, budget support and other assistance in return for accepting the detainees.

Life on the islands will be far from normal for the 17 Uighurs, most of whom were mostly born in Xinjiang, a region of China that is further from the ocean than anywhere else on earth.

Their homeland is predominantly Muslim, close to the Silk Road with an ancient history of culture and conquest by Ghengis Khan and Tamberlaine the Great.

Palau, by contrast, is one of the world's newest nations, with a population of 20,000. It consists of eight main islands and more than 250 islets about 500 miles east of the Philippines.

The Obama administration has faced intense political pressure since the president announced shortly after his inauguration that he would close Guantánamo Bay by January. Yesterday, the first Guantánamo detainee to be tried in a civilian US court pleaded not guilty at a hearing in New York. Ahmed Ghailani faces several charges arising from his alleged role in helping to organise the 1998 bombings of two US embassies in East Africa.

The 17 Uighur men, however, were cleared of charges of being combatants last year, and a federal district court ordered that they should be released in the United States. But an appeals court overturned that decision and Republican politicians argue that they pose too much of a threat to be given liberty to reside in the US.

The US justice department has blocked moves to resettle them on the US mainland, where they had been offered a home by refugee and Christian organisations. The men have remained in legal limbo ever since.

China seeks the extradition of the men, who the government in Beijing views as suspected members of illegal Xinjiang independence groups. Human rights groups have opposed extradition on the grounds that the men may be sentenced to prison, tortured or executed.

Critics accuse Obama of dumping a sensitive problem in the middle of nowhere rather than accepting that the US should take responsibility for prisoners it has abused.

According to the Associated Press, the United States has contacted about 100 governments, but has not been able to persuade any country to take the 50 detainees cleared for transfer.

Britain and France have accepted one each. In February, arrived in Britain after four years incarcerated in Guantánamo Bay.