By Patrick Nduwimana

BUJUMBURA, Jan 9 (Reuters) - Burundi's last remaining rebel group said on Friday it had renounced violence and was changing its name to reflect its transformation into a political party.

The Palipehutu Forces for National Liberation dropped the first part of its name, which means "party for the liberation of ethnic Hutus", a term the government had said was illegal.

Parties with tribal affiliations are outlawed in the small coffee-growing central African nation, which endured two decades of ethnic conflict that killed 300,000 people.

"Considering the great need for lasting peace in Burundi, we agree to make a sacrifice," former rebel leader Agathon Rwasa told reporters, adding the renamed FNL planned to contest the country's next election in 2010.

"We would like to ask the government to be flexible and register this new party without any conditions," he said.

Rwasa's group signed a peace deal in mid-2006 that ended the war, but tensions have remained high.

After many delays, increasingly impatient mediators led by South Africa had given both sides until the end of last year to complete the peace process or risk losing regional support.

As part of the deal, President Pierre Nkurunziza's government freed 247 FNL prisoners last week, while the rebels have agreed to demobilise and disarm their fighters.

Analysts say the political and military integration of FNL rebels is the final barrier to lasting stability in Burundi, and the mediators congratulated the group for Friday's "bold step".

"(We) appeal to both parties to seize upon the current momentum and work harder than ever as peace partners to speedily complete the ceasefire implementation process," they said in a statement. (Writing by Daniel Wallis; Editing by Janet Lawrence)

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