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ISTANBUL (Reuters) - The PKK Kurdish militant group said on Thursday media reports that its fighters would withdraw from Turkey under a peace process to end a 28-year-old insurgency were "lies" and part of a "psychological war".

The Kurdistan Workers Party (PKK) statement also said media reports that Ankara was in talks with the militants in northern Iraq were untrue.

Turkish officials began peace talks with the jailed leader of the PKK late last year. A newspaper report on Thursday said its guerrillas would withdraw to northern Iraq, where the group is based, by March 21.

Sabah, a newspaper close to the government, said the retreat was planned to begin at the start of March when the weather in southeast Turkey becomes milder, in a step to end a conflict that has killed 40,000 people.

"The stories on this subject are also completely invented lies," the PKK statement said of reports of talks with militants in northern Iraq. "These stories are activities in a deliberate psychological war aimed at manipulation."

PKK leader Abdullah Ocalan, imprisoned on Imrali island south of Istanbul, was expected to issue a call within 10 days for the militants to declare a ceasefire after Kurdish politicians visit him, according to Sabah.

The rebels took up arms in 1984 with the aim of creating a Kurdish state in southeastern Turkey. The PKK, declared a terrorist group by Ankara, the United States and the European Union, has since moderated its goal to one of autonomy.

Sabah did not disclose its source but has close links to the government. Only a few officials are involved in the talks and have not disclosed details publicly, fearing a nationalist backlash ahead of local and presidential elections next year.

In return for the withdrawal of the militants and their ultimate disarmament, the government is expected to boost the rights of Kurds, who make up about 20 percent of Turkey's population of 76 million.

As part of those reforms, Turkey's parliament last week passed a law allowing defendants to use Kurdish in court in a move seen aimed at breaking a deadlock in the trials of hundreds accused of links to the PKK.

(Writing by Daren Butler; Editing by Nick Tattersall and Janet Lawrence)

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