Bulgaria and Russia could soon sign an agreement over former Soviet arms licensing fees which Moscow has been claiming since the fall of Communism in 1989, government officals said Thursday.

"We agreed to proceed to a new intergovernmental agreement to be hopefully signed by end-2008," Bulgaria's Economy and Energy Minister Petar Dimitrov said after intergovernmental talks in Sofia.

Bulgaria, the former Soviet Union's most faithful satellite, acquired a number of licences during the Communist era to produce and export Soviet-built weaponry, such as Kalashnikov assault rifles and Makarov pistols.

After the break-up of the Soviet Union in 1991, Bulgaria continued to produce and sell modified series of the Soviet arms but under different names and at much lower prices, sparking a row with Russia.

Russia claimed licensing fees but Bulgaria insisted that its products had been so modified that they no longer had anything to do with the Russian originals.

"This has been a rather painful issue for Russia but we found a solution," Russia's Deputy Prime Minister Sergei Sobyanin told journalists Thursday, calling for further cooperation in military production between Moscow and Sofia.

The agreement, which has yet to be drawn up, "will be based on mutual restraint from any claims for past periods and will transfer further production and trading talks to a company level," Dimitrov said Thursday.

It will also write off all 211 previous intergovernmental agreements signed by the two sides between 1952 and 1989, Dimitrov's deputy Yavor Kuyumdzhiev told journalists on the sidelines of the talks.

Sofia parried Moscow's claims by pointing out several cases where the Russian side had broken agreements first which would allow Bulgaria to claim forfeits, he noted.

"Bulgaria engaged to invest over 800 billion dollars in building a plant for manufacturing MT-LB multy-purpose armoured personnel carriers for the Soviet Union, which then unilaterally broke the agreeement by ceasing to buy them at some point after 1989," Kuyumdzhiev said.

"And that was by no means the only such example."