Myanmar has reached a preliminary ceasefire with Kachin rebels, a negotiator said, raising hopes of an end to two years of fighting.

Min Zaw Oo, the director of the Myanmar Peace Centre, told the AFP news agency that Kachin and government representatives had signed a seven-point plan, including an agreement to halt hostilities.

"The agreement is to stop fighting at this point and afterwards there are going to be detailed discussions about the repositioning of troops," he said on Thursday.

The Kachin Independence Army (KIA) and President Thein Sein's government held three days of talks in Myitkyina, the capital of Kachin. Previous rounds of negotiations had been held across the border in China.

They also agreed to hold political dialogue, a key demand of the Kachin, who have long argued that negotiations should address their demands for more political rights as well as greater autonomy.

The two sides also agreed to hold discussions on resettling people displaced by the fighting and create a joint monitoring team.

Tens of thousands of people have been displaced in Kachin since June 2011, when a 17-year ceasefire between the government and the rebels broke down.

Fighting in Kachin and sectarian unrest elsewhere in the country have overshadowed widely political changes as Myanmar emerges from decades of military rule.

Sectarian violence

Civil war has plagued parts of the country formerly known as Burma since it won independence from Britain in 1948.

While the KIA is the last major rebel army to agree to a preliminary peace deal, skirmishes occasionally break out between the government and other groups.

The military's use of air strikes against the KIA in December recently caused an international outcry.

While the rebels reacted cautiously to subsequent government pledges to end the military offensive, fighting has eased in recent months.

Since coming to power two years ago, Thein Sein has surprised even cynics by freeing hundreds of political prisoners, easing censorship and letting opposition leader Aung San Suu Kyi enter parliament.

But international optimism over the sweeping changes has been marred by the Kachin conflict and several outbreaks of Buddhist-Muslim strife around the country.

In the latest religious violence, one person was killed and five injured on Wednesday in clashes in the eastern state of Shan, bordering Kachin.