* IGAD says Eritrea supporting rebels
* Eritrea denies charges
By Aaron Maasho
ADDIS ABABA, July 4 (Reuters) - An East African bloc on Monday asked the United Nations and the African Union to impose sanctions on Eritrea's booming mining sector for its alleged support of rebels seeking to overthrow Somalia's government.
AU peacekeepers have gained ground in recent months against the Somali insurgents al Shabaab, who claim ties with al Qaeda, but neighbouring states and Western security forces fear the nation could become a haven for militants unless they are completely flushed out.
President Sheikh Sharif Ahmed's U.N.-backed administration is the 15th attempt in two decades to set up central rule in Somalia, which has been mired in violence and awash with weapons since the overthrow of dictator Siad Barre in 1991.
"(We) strongly condemn the activities of Eritrea, (which) has taken an active part in destabilising the region by supporting extremist and other subversive elements," the Inter Governmental Authority on Development (IGAD) said.
"(IGAD) calls on the AU and the UN Security Council to fully implement the existing sanctions and impose additional sanctions selectively on the Eritrean regime, especially on those economic and mining sectors that the regime draws on," a statement added.
The impoverished nation is seen as being on the cusp of a minerals boom that could motor its needy economy.
IGAD also called for sanctions on remittances Eritrea receives from its large diaspora base in the West and the Middle East, which are its biggest source of foreign exchange.
Analysts say they continue to flow because high-ranking Eritreans travel to other countries and drum up support for the Red Sea state.
It's the second time IGAD has called on punitive measures against Eritrea, which was slapped with an arms embargo, travel restrictions and asset freezes for some of the country's top officials by the UN Security Council in 2010.
The call for sanctions came after an emergency meeting in Addis Ababa where a number of regional heads of state attended.
IGAD is made up of Djibouti, Ethiopia, Kenya, Somalia, Sudan and Uganda. Eritrea suspended its membership in 2007.
Asmara has repeatedly dismissed the charges, saying they were "conjured up" by arch-foe Ethiopia, with whom it fought a 1998-2000 war over disputed territory.
IGAD called the leaders of the lawless country to expedite the implementation of a deal meant to end the quarrelling between President Ahmed and the speaker of parliament that extended the beleaguered administration's mandate by 12 months and called for the appointment of a new cabinet.
IGAD also called on more peacekeepers to be deployed in Somalia, and urged the UN to impose a no-fly zone over the chaotic country and enforce a blockade of its ports to stop foreign fighters and arms from bolstering the rebels.
"(IGAD) directs the formation of a ministerial task force that would come up with joint measures to be taken to improve more vigilance on movements of any extremist group," it said.
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