They hope the port will allow easy and cheap transport of goods to India's remote, restive north-eastern states.

India will put $103m into the project, despite international calls for sanctions against the military rulers.

Analysts say Delhi has been reluctant to criticise the generals because of its strategic interests in the area.

The two countries share a border of about 1,600km (1,000 miles) and Sittwe, in Burma's Arakan province, is 160km from India's Mizoram state.

'Huge benefit'

"We are now in a final stages of negotiations and the agreement should be through within a month," said an Indian foreign ministry official, who did not wish to be named.

Under the agreement, India will invest $103m to develop the port and put in place facilities to use the Kaladan river.

Goods will then be easily shipped from ports in eastern India and taken to the landlocked north-east Indian states in smaller vessels.

Logistics experts say it will take three years to complete the project after the agreement is signed.

"Once that happens it will hugely benefit north-east India and save transport costs to the region by 40%, even 50%," said Atin Sen of the Calcutta-based Asian Council of Logistics Management.

Delhi has been desperate to use a port in one of its neighbouring countries to carry goods to the north-east from the mainland for several decades.

They started negotiations for using Sittwe once it became clear Bangladesh would not allow Chittagong to be used.

Gas riches

India supported Burma's pro-democracy movement until the mid-1990s, when it started improving relations with the junta in an effort to compete with China's growing influence in Burma.

Now it is building roads and railways in western Burma, and its companies are trying to gain access to rich deposits of oil and natural gas.

Almost all of India's seven north-eastern states are troubled by nagging separatist movements, and Delhi is banking on the junta to chase out the Burma-based rebels.

So India has so far refrained from condemning the military crackdown on the democracy movement, and has rather called for negotiations for a phased return to democracy in Burma.

Critics of Indian policy say its support of the junta has so far achieved very little.

They argue that Delhi should support global efforts to promote change in Burma - both as a matter of principle and in order to promote longer-term stability and prosperity in the region.