Museveni has been seen as part of the new generation of democratic leaders in Africa

President Yoweri Museveni said that donor pressure to reduce military spending was one reason for the long-running rebellion in the north.

The UK cancelled �5m ($10m) of aid, saying not enough had been done to establish fair multi-party politics.

About half of Uganda's entire budget comes from donor funding.

'Tax leakages'

"The so-called donors cannot continue to show us how we should manage the country," he said in a Labour Day speech read by Vice-President Gilbert Bukenya.

He said the Uganda Revenue Authority was trying to reduce "tax leakages" and increase the amount of tax it generates and this would remove the need for donor funding.

The political temperature has been rising in recent months

If this was successful, he said, "We shall not need the practice of dealing with donors, whose meddling is partly responsible for perpetration of terrorism in the north."

The Lord's Resistance Army rebels have kidnapped thousands of children in the north, forcing them to become fighters or sex slaves.

Since President Yoweri Museveni came to power 18 years ago, Uganda has operated a unique political system which severely restricted political parties.

But the political landscape is set to change.

Multi-party elections are expected to return next year, but some say the government is not doing enough to ensure a smooth transition.

The funds held back by the UK represented around 10% of its proposed aid to Uganda for the year.