EU states are nearing a deal to permanently lift sanctions on Cuba despite protests from human rights activists and hundreds of political prisoners remaining in jail.

"The time could be right because of changes undertaken by Cuba's new leadership," an EU diplomat told Reuters ahead of a meeting of EU foreign ministers on the topic on June 16. "Sanctions could possibly be lifted...we are working on finding the exact formula," another diplomat said.

The EU froze high-level diplomatic relations with Havana in 2003 after the jailing of 75 dissidents and the execution of three people trying to flee to the US. The EU measures were temporarily suspended in 2005 and are reviewed every six months.

The shift in climate comes after president Raoul Castro took over from his brother Fidel in February, lifting restrictions on islanders buying mobile phones and computers and giving more room for political debate.

In a sign of the times, leading dissident Hector Palacios on Tuesday told AP that he plans to return from exile to Cuba to resume opposition work as he no longer fears arrest. "Change is going to happen," Mr Palacios said.

The European Commission and Spain are leading the push to end EU sanctions for good to encourage further reforms. But the Czech Republic wants rules obliging future EU delegations to raise human rights concerns and meet opposition groups.

Opposition NGO Agenda for Transition in an open letter to Brussels on Tuesday said that a premature sanctions move would "punish" pro-democracy activists, who continue to face beatings and intimidation with over 200 prisoners of conscience still behind bars.

"What the [Cuban] government wants is for the opposition to be ignored so it can continue its human rights violations without even a single rebuke from the European Union," the letter said, AFP reports.

A joint message from the EU-US summit in Slovenia on Tuesday saw the two powers "urge the [Cuban] government to...demonstrate its commitment [to civil rights charters] by unconditionally releasing all political prisoners."

EU external relations commissioner Benita Ferrero-Waldner also said on the fringe of the Slovenia event that "human rights issues are very important ones and there are still a lot of political detainees there."

But the US, which has enforced a crippling trade embargo on Cuba since 1962, is taking a tougher line by calling for a mass release of the prisoners before relations can improve.

"If the Castro administration really is different, the first way to show that difference to the world is to free the political prisoners," US president George Bush said in his post-summit speech.