AFP - Israel is refusing to free a group of Palestinian prisoners demanded by Hamas in exchange for a captured Israeli soldier, officials close to the talks on a deal said on Wednesday.

They said Israel objected to releasing a group of Palestinian prisoners serving life terms or long sentences in exchange for Gilad Shalit who is being held by militants in Gaza, ruled by the Islamist movement Hamas.

One official close to the indirect negotiations said reports of an imminent prisoner exchange were "premature."

"There was progress on some names, but there is a problematic bulk, or group" from the list of 450 hardcore prisoners on the Hamas list, the official said, requesting anonymity because of the sensitivity of the talks.

"There hasn't been a significant change," he said, adding only that there were more than several prisoners under dispute. "I wish it was only one or two" prisoners involved.

Both Hamas and Israel earlier this week reported progress in the negotiations, which have been mediated by Egypt and Germany, but downplayed reports of a quick deal.

Shalit was captured by Palestinian militants including Hamas in a cross-border raid from the Gaza Strip in 2006.

Hamas is demanding hundreds of prisoners on top of the 450 militants who are to be released once Shalit is handed over to Egypt. The remaining prisoners are to be set free when the soldier is returned to Israel.

A delegation from Hamas in Gaza reportedly met with a German mediator in Cairo on Tuesday and then headed to Damascus to consult with the group's exiled leadership.

The pan-Arab newspaper Al-Hayat on Wednesday reported a dispute within Hamas over the list of prisoners, with some of its officials insisting that Israel release all the prisoners demanded by the Islamists.

Hamas says it has included prisoners from the smaller Islamist group, Islamic Jihad, and its rival Fatah party on the list.

A pro-Hamas website quoted a senior Hamas leader in Gaza as blaming Israel for stalling the talks.

Israel "has not yet answered the demands of the Palestinian factions that are holding the soldier Gilad Shalit," Khalil al-Haya was quoted as saying on the website close to the Islamist group.

"This entity is responsible for hindering an agreement to release the soldier," he added.

The first stage of the prisoners' exchange took place last month, when Israel released 20 Palestinian women prisoners in return for a video tape of Shalit that showed him to be in good health.

Israeli Prime Minister Benjamin Netanyahu has said that any final list of Palestinian prisoners must be first ratified by his cabinet.