The outgoing Sri Lankan president told the Asia Society in New York late Wednesday that her Indian Ocean island nation must change its unitary character and work towards helping Tamil Tiger rebels to join the political mainstream.

"We need to transform the state so it is more inclusive -- equally reflecting the concerns of all communities.

"My view and the view of overwhelming sections of Sri Lankan society is that this will involve transforming the state from a unitary one to one that is plural and federal in nature," she said.

Her remarks were in sharp contrast to pre-election pacts signed by her prime minister and party number two Mahinda Rajapakse vowing that any solution to the conflict would have to be within a unitary, not federal state.

The president, 60, whose second and final term ends in December, did not explain the conflicting position taken by her own nominee to replace her at the upcoming presidential elections, which has renewed fears of a return to war.

However, she stressed that all political parties would have no choice but to support the transformation into a federal state and helping the Liberation Tigers of Tamil Eelam (LTTE) give up their armed struggle.

Kumaratunga argued that adopting a federal constitution alone may not bring lasting peace to a country where more than 60,000 people have been killed in the past three decades.

"To achieve peace we also need to deal with the second equally important, but neglected challenge -- transforming the LTTE from a dictatorial and ruthless militant group... to a political force," she said.

The Tigers have been declared a foreign terrorist organisation by the United States, Britain and several other countries.

She said her party had managed to "quietly change" the attitude of the LTTE to cooperating with the central government in carrying out much needed development work in the impoverished areas held by the guerrillas.