* Fears of "ticking time bomb" in Western Sahara -U.N.
* U.N. calls for independent human rights monitoring
The conflict in Mali threatens to spill over into the disputed territory of Western Sahara, with the possibility of infiltration by foreign militant groups, the U.N. chief warned in a report.
Secretary-General Ban Ki-moon also called for "sustained" independent human rights monitoring for Western Sahara, something Morocco opposes but human rights groups and the Polisario Front independence movement have long advocated.
Morocco took control of most of Western Sahara in 1975 when colonial power Spain withdrew, prompting a guerrilla war for independence that lasted until 1991 when the United Nations brokered a ceasefire and sent in a peacekeeping mission.
"During meetings with MINURSO (the U.N. mission), Frente Polisario commanders have not ruled out terrorist infiltrations" from Mali by Islamic militants, Ban said in a report to the 15-nation Security Council obtained by Reuters.
"Possible armed infiltrations, gaps in regional security coordination and resource shortages for effective border controls expose military observers to risk," the report said.
France launched a military offensive in Mali in January against Islamist militants threatening the capital. That drove the insurgents out of the towns they had seized, but they have since hit back with suicide attacks and guerrilla-style raids.
Western powers are concerned that Mali's vast and lawless Saharan desert could become a launchpad for international militant attacks. Other European governments have ruled out sending combat troops but are backing a military training force.
"All governments consulted raised serious concern over the risk that the fighting in Mali could spill over into the neighboring countries and contribute to radicalizing the Western Saharan refugee camps," Ban's report said.
One government called the situation in Western Sahara a "ticking time bomb," Ban said.
Rabat has long tried to convince Polisario, which represents the Sahrawi people, to accept its plan for Western Sahara to be an autonomous part of Morocco.
Polisario instead proposes a referendum among ethnic Sahrawis that includes an option of independence, but there is no agreement between Morocco and Polisario on who should participate in any referendum.
The referendum has never been held and attempts to reach a lasting deal have floundered.
HUMAN RIGHTS MONITORING
No state recognizes Morocco's rule over Western Sahara but the Security Council is divided. Some non-aligned states back Polisario but France and the United States, both veto-wielding council members, have continued to support Rabat.
Polisario accuses Morocco of routine human rights violations in Western Sahara and has called for MINURSO to have the authority to conduct independent human rights monitoring. That is something that Polisario has called for in previous years, but Morocco, backed by France, has rejected the idea.
In his report, Ban argued in favor of some form of independent rights monitoring but offered no details on how it would be carried out in the resource-rich territory.
"Given ongoing reports of human rights violations, the need for independent, impartial, comprehensive and sustained monitoring of the human rights situations in both Western Sahara and the (refugee) camps becomes ever more pressing," Ban said.
Morocco's U.N. mission did not have an immediate comment.
Polisario's U.N. representative, Ahmed Boukhari, welcomed Ban's recommendation, saying it should push the Security Council "to take the necessary measures toward the establishment of a permanent mechanism to monitor the situation of human rights."
Last year, Human Rights Watch, a U.S.-based watchdog group, wrote to the council urging it to approve rights monitoring since Moroccan initiatives "fall far short of ensuring regular and impartial monitoring of the current human rights situation in Western Sahara and the refugee camps near Tindouf, Algeria."
As in previous years, the council did not back a permanent rights monitoring mechanism last year.
While the Security Council has never formally assigned MINURSO the role of human rights monitoring, Morocco, a temporary council member, has come under increasing pressure from the European Union and United States on human rights.
Ban also recommended renewing the mandate for the U.N. peacekeeping mission in Western Sahara for another year until April 30, 2014, as well as adding 15 military observers and six U.N. police officers to the force.
Western Sahara, which is slightly bigger than Britain, has under half a million people. But it is rich in phosphates - used in fertilizer - and, potentially, offshore oil and gas.