* Armed standoff in no-man's land near Mauritania
* Polisario accuses Morocco of breaking ceasefire
* Morocco says is clearing the area of smugglers
By Patrick Markey and Michelle Nichols
ALGIERS/NEW YORK, Aug 31 (Reuters) - U.N. peacekeepers have deployed to monitor a standoff between Moroccan forces and Western Sahara's Polisario Front that risks escalating into one of the worst flare-ups in the disputed region since a 1991 ceasefire.
Polisario, which declared an independent republic in the desert land in the 1970s, accuses Morocco, which claims sovereignty of the region, of breaking the terms of the ceasefire by building a road in a U.N. buffer zone.
U.N. peace-keeping observers are watching Moroccan Royal Gendarmerie personnel and a unit of Polisario fighters face off in a narrow patch of no-man's land in the far south where Morocco has begun what it calls "clearing operations" to stop smuggling and other criminality.
The buffer zone is in an area between the Moroccan-built berm - a mostly sand wall that stretches through Western Sahara, separating government-controlled areas from Polisario territory - and a Mauritania frontier post.
According to a confidential note to the U.N. Security Council by the U.N. Department of Peacekeeping Operations, seen by Reuters, Morocco this month launched air and ground patrols and began laying a road south of their wall in the buffer zone in the Guerguerat region.
"We are not going to allow Morocco to advance with a roadway outside the wall, this is a violation of the ceasefire," Bechraya Hamoudi Sidina, the Sahrawi Arab Democratic Republic's envoy in Algiers, told Reuters.
"We are not beating war drums, but the U.N. must assume its duty and oblige Morocco to return to it original position."
Moroccan officials did not respond to requests for comment.
Polisario had informed the U.N. mission it would dispatch troops if Moroccan activities did not stop.
In the Aug. 28 peacekeeping note, U.N. observers noted 32 Polisario military in the buffer zone, where they said they would establish a checkpoint to stop Moroccan activities, but not impede local traffic. Moroccan Royal Gendarmerie were also in the buffer zone.
U.N. Secretary-General Ban Ki-moon said in a statement he was "deeply concerned" and called on both sides to withdraw armed elements from the area.
Western Sahara, which is rich in phosphate, has been at a diplomatic impasse for more than 20 years since the U.N.-sponsored ceasefire came into force on the understanding a referendum would be held on self-determination.
But the two sides never agreed on the terms of the referendum. Morocco's king has proposed an autonomy plan instead and invested heavily in the region in an attempt to calm independence claims.
Tensions were already high before the Guerguerat stand-off. Earlier this year Morocco expelled part of the U.N. observation mission in protest after it said Ban had compromised the U.N.'s neutrality.
Polisario is also in transition after its long-time leader and founder Mohammed Abdelaziz died in May. New leader Brahim Ghali must manage frustrations of a younger generation of the Western Sahara's Sahrawi people who have lived their lives in refugee camps in southern Algeria. (Additional reporting by Aziz El Yaakoubi in Rabat; Editing by Robin Pomeroy)
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