ISTANBUL, April 24 (Reuters) - Turkey's powerful military wants a complete stop to truck imports of crude and diesel from northern Iraq which it says help fund Kurdish rebels, a newspaper said on Wednesday. 

The trade across Turkey's southeastern border is a major source of money for a region battered by years of conflict with separatist Kurdish guerrillas but is opposed by major oil companies in Turkey who say the cheap imports are unfair competition. 

The Milliyet newspaper said a confidential military report to Prime Minister Bulent Ecevit and other ministries had "pointed out the vital importance of completely stopping cargo of diesel and crude oil and the prevention of smuggling". 

Officials at Turkey's General Staff and prime ministry were not immediately available for comment on the veracity of the report. 

Truck drivers and Kurdish officials in northern Iraq say the cross-border trade has fallen off dramatically recently, partly as a result of tighter Turkish border controls and levies. 

The report referred to Turkish state-controlled refiner Tupras's TUPRS.IS planned purchase of some four million tonnes of registered crude imports across the border in 2002 alongside around 200,000 tonnes of smuggled crude. 

Legions of ramshackle local trucks that shuttle across the border carry food and other goods in northern Iraq and returning with loads of diesel and crude. 

The trade has been carried out in violation of U.N. trade sanctions against Baghdad since 1990's Gulf crisis, but it is largely condoned by the United Nations. 
 

PROFITS GO TO REBELS 

The diesel is sold at below market prices while the smuggled crude is refined in "pirate" facilities around Turkey's southeast. The military report said many of the illegal refineries had been set up by converting tarmac and edible oil factories. 

"In 2002 there will be illegal earnings of 200-250 trillion lira ($150-188 million) from crude oil smuggling and of 86.26 trillion lira from smuggled diesel," the report said. 

Northern Iraq has been outside Baghdad's direct control since after the 1991 Gulf War and the fuel trade is run by Kurdish groups that govern the enclave although the fuel originates from oilfields in Iraqi government-controlled areas. 

Turkey has long regarded the Kurdish enclave with suspicion and keeps troops there to attack Kurdistan Workers Party (PKK) rebels who use the region as a base. 

The military report said that the fuel smuggling and refining trade was mainly run by "PKK members in person or their allies" and used to fund Kurdish separatism. 

"(This trade) increases the financial resources of the organisation, widens the organisation, stains our people with the illegal transactions and undermines the prestige of the country," Milliyet quoted the report as saying. 

The PKK said this month it was renaming itself the Kurdistan Freedom and Democracy Congress or KADEK as part of a policy of abandoning armed struggle for peaceful political pressure. 

Turkey says the name change are tricks and promised to pursue its campaign against a group it calls "terrorist".