By Carl Odera

JUBA (Reuters) - South Sudan has driven rebels out of the capital of an oil-producing state, its government said on Thursday, in further fighting as another attempt to resume peace talks fell through.

Presidential spokesman Ateny Wek Ateny said the town of Malakal, on the White Nile river near major oilfields in the north of the country, had been shattered by fighting but that its recapture marked a strategically important win.

The latest clashes highlighted the lack of headway made in peace talks between the government and rebels loyal to former vice president Riek Machar who have not commented on the status of Malakal.

Negotiations were scheduled to resume on Thursday but the Juba government said it had not sent its delegation to neighbouring Ethiopia, which is hosting the talks, in a dispute over who should be represented.

"Our negotiation team has not yet gone to Addis Ababa. Only the government and the rebels should sit at the negotiation table," Ateny told reporters in South Sudan's capital.

Juba objects to seven ex-political detainees freed forming a third party at the talks. They were released in January but the government says they could still face criminal charges for alleged involvement in a coup plot.

"They are not fighting the government, they have no forces, they are still suspects," Ateny said.

The so-far futile peace talks have frustrated Western backers of the world's youngest country who are pressing both sides to honour a January ceasefire deal.

The United States, Britain, European Union and Norway on Wednesday threatened targeted sanctions against the warring sides in South Sudan, which declared independence from Sudan in 2011 but has been plagued by disorder since.

Other major sticking points stalling the negotiations are rebel demands that four remaining political detainees be freed, and the withdrawal of Ugandan troops.

Ugandan forces entered South Sudan on Juba's invitation to help protect the airport, presidential palace and other installations in the capital, but have been accused by rebels of fighting alongside government soldiers in various flashpoints.

Malakal is a gateway to Upper Nile state's oil fields, where production his week held steady at about 160,000 barrels a day, an official told Reuters on Wednesday. Oil facilities in neighbouring Unity state were shut soon after the fighting erupted in mid-December.

Thousands have been killed and almost a million uprooted from their homes in the conflict, which has often pitted factions from President Salva Kiir's Dinka community and the Nuer ethnic group of Machar against each other.


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