Two senior defence officials in the Serb-run part of Bosnia have lost their jobs over revelations of illegal arms sales to Iraq.

This act [resigning] help to improve the international position of the Republika Srpska

Government statement

Defence Minister Slobodan Bilic and army Chief of Staff Novica Simic both stood down from their posts in the administration of the Bosnian Serb Republic, or Republika Srpska.

The resignations follow the admission by the government that the state-owned Orao aviation firm had been involved in selling military equipment to Iraq in defiance of a United Nations embargo.

Last week, two senior Yugoslav officials were sacked after the US accused the state-owned Jugoimport company of helping Orao sell spare parts for fighter planes to Baghdad.

US pressure

The Bosnian Serb Supreme Defence Council announced the latest resignations following discussions on the illegal sales on Monday night.

The council said the two men had not been directly responsible for the sale of parts for fighter aircraft, but said their resignations helped "improve the international position of the Republika Srpska and of Bosnia".

Earlier, State Department spokesman Richard Boucher said initial moves by Republika Srpska against Orao - including firing the general manager - were not enough.

The raided aviation company is state-run

"This is a good start, but more needs to be done," he said.

"The United States expects the relevant authorities in Bosnia-Herzegovina, and particularly the Republika Srpska, to conduct a thorough investigation and to hold accountable those responsible regardless of the seniority or position."

Bosnian Serb and Yugoslav leaders have played down the role of state firms in the affair, saying the deals were done by corrupt officials for personal profit.

Ashdown warning

On Sunday, Bosnia's top international representative, Lord Ashdown, issued a stern warning to Bosnian Serb politicians over the sales.

Along with the commander of the peace-keeping force, S-For, he accused the republic's government of both covering up and ignoring the role of state-owned companies in an arms trade with Iraq.

Nato-led troops raided the Orao plant earlier this month, revealing that the company was repairing engines for Iraqi Mig fighter jets.

The head of the Organisation for Security and Cooperation in Europe in Sarajevo has said there is compelling evidence that Bosnian and Yugoslav firms may have been working on the development of a cruise missile with Iraq.

BBC regional reporter Alix Kroeger says one of the most striking features of the scandal is the durability of the ties linking the armed forces of what are now separate countries - especially between the Bosnian Serbs and Yugoslavia itself.

Until earlier this year, Bosnian Serbs were on the Yugoslav Army payroll.