By Manuel Mogato

MANILA, Nov 21 (Reuters) - Philippine President Rodrigo Duterte will issue an executive order declaring part of the disputed Scarborough Shoal a marine sanctuary off-limits to all fishermen, a move his office said was supported by Chinese counterpart Xi Jinping.

Duterte will make a unilateral declaration barring fishermen from exploiting marine life at a tranquil lagoon that was central to years of bitter squabbling, and the basis of an arbitration case brought and won by the Philippines.

The dispute over the Scarborough Shoal is one of several involving South East Asian countries seeking to counter China's growing assertiveness in the South China Sea.

Since 2012, China has deployed its coastguard to block the shoal from Filipinos, despite being located inside the 200 nautical mile exclusive economic zone of the Philippines.

The establishment of a protected marine zone, if successful, could provide both countries a face-saving way to break the diplomatic deadlock without making a political agreement or formal concessions.

Under the plan announced by the president's office on Monday, fishermen of both countries can cast nets on the fringes of the lagoon, but not inside it, allowing fish stocks to be replenished.

The move is the latest gesture towards China in what has been an astonishing reversal of Philippine foreign policy under Duterte, who opted to befriend Beijing while admonishing longtime ally the United States for what he calls hypocrisy and bullying.

The about-face came soon after the Permanent Court of Arbitration (PCA) in The Hague ruled in favour of the Philippines in a complex ruling that undermined the territorial claims China stakes with a U-shaped dotted line on its maps. China has refused to recognise the case.

The PCA award said no one country had sovereign rights to the Scarborough Shoal, thus all claimants were legally entitled to exploit its fish stocks.

Presidential Communications Secretary Martin Andanar said Chinese leader Xi, whom Duterte met at the weekend during an Asia-Pacific summit in Peru, voiced support for the sanctuary plan.

He said Xi wanted to create a "favorable environment" at the shoal.

China has softened its stance since Duterte returned from a high-profile trip to Beijing in October. Filipino fishermen who went close to the shoal said China's coastguard was no longer repelling them, as it had done over the past four years.

Staunch environmentalist and former president Fidel Ramos, who in August broke the ice with Beijing as Duterte's special envoy, said a marine sanctuary was the right move and was "the highest form of aquaculture preservation".

Philippine security expert Rommel Banlaoi said the plan was to promote sustainable fishing rather than give China a graceful way out, adding that China had already softened its position on the Scarborough Shoal, without acknowledging so.

"They are adhering, in fact, to the ruling of the arbitration court by allowing our fishermen there," he said. (Writing by Martin Petty; Editing by Simon Cameron-Moore)

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