World Bank Vice-President for Africa Callisto Madavo said there would be no new lending until the two countries ended their 16-month border war, which has left thousands dead.

"The only battles these two countries ought to be involved in are battles against poverty, battles to reverse poor living conditions of their people," he said, during a visit to the Zambian capital, Lusaka.

World Bank's Callisto Madavo: No new initiatives (UN photo)

"These are the aspirations of ordinary Ethiopians and Eritreans. We have told the two countries that there cannot be new lending before they revert to these important battles," he said from the Zambian capital, Lusaka.

The World Bank has substantial programmes worth hundreds of millions of dollars in both countries.

Mr Madavo said existing projects were being implemented as best they could, but fresh lending initiatives would not now be considered.

Fruitless search for peace

Attempts to reach a peaceful settlement, led by the Organisation of African Unity, have proved difficult.

The UN says war is worsening an already serious famine threat

Both Ethiopia and Eritrea have accepted a framework peace agreement in principle, but disputes remain over technical details.

At the weekend, Ethiopia warned that it would use force to dislodge Eritrean forces from pockets along its disputed border unless the peace plan guarantees its sovereignty over the territory.