By Andrew Quinn

WASHINGTON (Reuters) - Secretary of State Hillary Clinton urged newly independent South Sudan on Tuesday to be prudent with its oil wealth, warning mismanagement and the "resource curse" could see money siphoned off by unscrupulous elites and foreign powers.

Clinton, speaking at a development conference for South Sudan in Washington, welcomed the new government's pledge to improve transparency and accountability, particularly in the oil sector that appears poised for major development.

"The proof is in the pudding. What matters most is whether the government follows through on it," Clinton told the audience, which included South Sudan President Salva Kiir.

"We know that it will either help your country finance its own path out of poverty or you will fall prey to the natural resource curse which will enrich a small elite, outside interests, corporations and countries and leave your people hardly better off than when you started."

Kiir said South Sudan was determined to become "an island of stability" in Africa after emerging to claim independence in July, culminating a 2005 peace deal that ended decades of civil war with Sudan.

"We have come from 50 years of conflict, marginalization and war. Our history has created countless roadblocks and challenges that we must overcome," Kiir told the conference.

"We can have well-written and thought-out dreams, but if we do not practically improve our governance system, this dream is as good as not being there," he said.

South Sudan accounts for around 75 percent of the formerly united country's 500,000 barrels per day of oil output. Oil revenues could make it one of the wealthiest countries in the region - at least on paper.

But South Sudan and Sudan still face disputes over sharing oil revenues and ending fighting in a volatile border region, keeping tensions high between the two neighbors whose long civil war killed an estimated 2 million people.

"THE LOGIC OF FORCE"

Kiir urged the international community to take a tougher line with Khartoum, which he accused of violating his country's air space and bombing villages and refugee camps.

"It is our strong desire that the international community seeks means and ways of making appropriate interventions so that potential flashpoints for renewed fighting between the Republic of Sudan and us are extinguished," he said.

He repeated South Sudan's demand that the fate of the disputed oil-producing border region of Abyei must be decided through a referendum "and not through the logic of force."

U.S. officials say the Washington conference will introduce South Sudan both to aid organizations and to private companies, seeking to jump start the economy and open up new opportunities, particularly in the oil and agriculture sectors.

The country, roughly the size of France, remains one of the last developed in the world, and officials tick off a huge list of needs ranging from schools, hospitals and roads to telecommunication infrastructure and basic consumer goods.

The United States last week eased sanctions on South Sudan to allow investments in the oil sector, although it has maintained standing bans on most economic interaction with Khartoum.

U.S. Trade Representative Ron Kirk said the United States hoped soon to qualify South Sudan for trade benefits including the African Growth and Opportunity Act, which allows most goods produced in select African countries to enter the United States duty-free.

(Editing by Philip Barbara)