By Louis Charbonneau

UNITED NATIONS (Reuters) - Morocco has proposed allowing around 25 civilian staff to immediately return to the United Nations peacekeeping mission in disputed Western Sahara in a sign that tensions between Rabat and the U.N. may be easing, diplomatic sources said on Friday.

Earlier this year, U.N. Secretary-General Ban Ki-moon used the word "occupation" to describe Morocco's annexation of Western Sahara in 1975, when Rabat took it over from colonial power Spain. Infuriated by what it saw as a shift away from a neutral position, Morocco expelled dozens of U.N. staff working for the mission there known as MINURSO.

The U.N. has been in talks with Morocco to end the dispute for months. U.N. diplomatic sources said on condition of anonymity that the discussions appeared to be producing some results, though they cautioned that nothing has been finalized or signed.

"It's true that Morocco has offered to let some 25 staff back in though it's still all being negotiated," a source told Reuters.

In April the U.N. Security Council extended MINURSO's mandate for another year and demanded urgent restoration of its full functionality. However, council diplomats and U.N. officials said discussions on restoring MINURSO's full functionality have been slow and difficult.

The controversy over Ban's comment during a visit to refugee camps for Sahrawi people is Morocco's worst dispute with the United Nations since 1991, when the U.N. brokered a ceasefire to end a war over Western Sahara and established MINURSO.

The diplomatic sources said both Morocco and the U.N. wanted their dispute to end. Morocco, they said, is keen to have Ban come to their country to attend a special high-level meeting on climate change in November.

"If this thing is not resolved, I can't imagine the secretary-general attending," a U.N. official told Reuters on condition of anonymity.

Morocco's U.N. mission did not respond immediately to a request for comment.

U.N. peacekeeping chief Herve Ladsous briefed the 15-nation Security Council on Thursday on the MINURSO discussions. Several diplomats at that closed-door session told Reuters Ladsous spoke of positive momentum in the talks with Morocco.

After Ban's remarks in March, Morocco demanded that 81 U.N. international civilian staff and three African Union staff leave the mission. It also ordered the closing of a MINRUSO military liaison office.

The Sahrawi people's Polisario Front movement, which demands self-determination for Western Sahara, wants a referendum on independence for the disputed territory. Morocco says it will only grant autonomy. Before the reductions, MINURSO had nearly 500 military and civilian personnel.

(Reporting by Louis Charbonneau; Editing by Andrew Hay)