Bosnia's Muslim and Serb leaders on Friday reached agreement on police reform, a key requirement for Bosnia to sign the association and stabilisation agreement with the European Union, local media reported.

Bosnia's international peace envoy Miroslav Lajcak and other EU officials warned the rival leaders earlier this month they needed to finally agree on reforming the country's ethnically separate police forces, or risk isolation.

State radio and SRNA news agency reported that Bosnian Muslim leader Haris Silajdzic and his political rival Milorad Dodik, the leader of the Bosnian Serbs, signed a protocol on the police reform according to a plan earlier proposed by Lajcak.

Since the end of the 1992-95 war, Bosnia has been divided into the Serb Republic and the Muslim-Croat federation, each with their separate police force.

The European Union has insisted that the police needed to be brought closer, financed from a single budget and be politically unbiased, and made the reform a precondition to the signing of a Stabilisation and Association Agreement (SAA).

According to the reports, Silajdzic and Dodik said that their agreement would "open the door" for Bosnia to sign the SAA, the first step to EU membership.