BRUSSELS—The North Atlantic Treaty Organization has rejected a Russian air-safety proposal that would require all military planes in the Baltic region to fly with their transponders operational, according to allied officials.

Allied officials say the proposal would do little to improve air safety—or prevent Russian aircraft flying dangerously close to ships or planes flown by western allies.

Still, key NATO allies are keen on advancing the military dialogue with Russia and hope to continue talks with Russian officials aimed at developing a new air safety measure.

NATO Secretary-General Jens Stoltenberg and Russian Foreign Minister Sergei Lavrov are due to meet in New York on Wednesday on the sidelines of the United Nations General Assembly.

Moscow made the proposal to have all military planes fly with their transponders on at a meeting of the NATO-Russia Council in July. European officials had long complained that Russian planes frequently fly without their transponders on, making it more difficult to identify such aircraft.