Taiwan's financial regulator on Thursday refused to comment on reports that Industrial and Commercial Bank of China plans to acquire a stake in the island's leading bank.

Taiwanese media reported that Cathay Financial Holdings had been in talks with Industrial and Commercial Bank of China to sell a 20 percent stake for up to 3.0 billion US dollars.

Taiwan's existing law bans Chinese firms from direct investment in local banks.

However, such a deal may be possible under a proposed "Economic Cooperation Framework Agreement," which calls for the removal of barriers between Taiwan and its former rival China for smooth flow of goods and personnel.

"It is way too early to discuss" the deal, an official of the Financial Supervisory Commission was quoted by the United Evening News as saying.

However, Lai Shyh-bao, a senior ruling party Kuomintang legislator on parliament's financial committee, told AFP that discussions "may have been underway for a while, awaiting the proposed trade pact next year."

Taiwan's China-friendly administration claims that the agreement could lift the island's economic growth by one percentage point.

However, the opposition, which favours independence from China, has warned the pact could imperil the island's separate status.

Taiwan and China split at the end of a civil war in 1949, but Beijing still considers the island part of its territory, vowing reunification, even if it has to use force.