Sydney: Australia said on Monday it would scale back sanctions against Myanmar in recognition of steps taken by the formerly isolated military regime towards democracy and greater regional engagement.

Foreign Minister Kevin Rudd said Canberra was revising down its sanctions list to remove ex-ministers who had left politics and tourism officials, and members of the new government would "not be listed at this time".

"We hope positive developments, such as the increased participation of opposition parties in the political process, the release of around 220 political prisoners and new labour laws that will legalise trade unions will continue," Rudd said in a statement.

"In this context we will keep our approach to sanctions under review."

Australia applies financial and travel restrictions to certain individuals and there is a blanket arms embargo to Myanmar which Rudd said "will remain."

The revised list is expected to come into effect by the end of January.

Myanmar's military rulers held rare elections in 2010 and later nominally handed over power to civilians, with outright army rule ending in March.

President Thein Sein -- a former junta general – has surprised observers by holding talks with democracy icon Aung San Suu Kyi, suspending an unpopular Chinese-backed dam project and attempting to negotiate ceasefires with ethnic rebel groups.

Myanmar has so far failed to meet expectations on the release of political prisoners -- a key demand by Western nations that back tough sanctions against the regime – but Rudd said it had taken a "number of important steps".

"There is much progress still to be made in Burma and Australia continues to urge the release of all political prisoners, free and fair by-elections and the peaceful resolution of ethnic conflicts," said Rudd, using the nation's
former name.