Southeast Asian nations are set to endorse Myanmar Thursday for the chairmanship of a key regional grouping, gambling that the isolated country can stick to reforms begun this year that could lead it out of half a century of isolation.

But U.S. President Barack Obama cautioned that Myanmar, also known as Burma, must still demonstrate improvements in human rights in his first remarks since the authoritarian regime freed hundreds of political prisoners in October and vowed more reforms in the weeks ahead.

A senior Myanmar Home Ministry official told Reuters on Wednesday the new civilian government was ready to release more political prisoners after freeing about 230 activists on October 12, one of several indications that reforms may be underway after elections last year ended five decades of military rule.

Some political prisoners have been released. The government has begun a dialogue. Still, violations of human rights persist, Obama said in a speech to the Australian parliament.

So we will continue to speak clearly about the steps that must be taken for the government of Burma to have a better relationship with the United States.

The 10-member Association of South East Asian Nations (ASEAN) -- of which Myanmar is a member -- is expected to formally approve on Thursday Myanmar's request to chair the Southeast Asian regional bloc in 2014, two years ahead of schedule, giving it some long-sought international recognition.

We believe that with the positive improvements in Myanmar right now, this has shown that Myanmar would like to come back to the democratic way, Thai Foreign Minister Surapong Towijakchaiku told reporters during an ASEAN summit on the Indonesian resort island of Bali.

Recent overtures by Myanmar's government have included calls for peace with ethnic minority groups, some tolerance of criticism, the suspension of an unpopular Chinese-funded dam project and the legalisation of labour unions.

President Thein Sein has also reached out to democracy leader Aung San Suu Kyi, who was freed last year from 15 years of house arrest. Her National League for Democracy is expected to decide on Friday whether to re-register as a political party to contest imminent by-elections.

The United States and Europe have said that freeing political prisoners is one of several preconditions to lifting sanctions that have isolated Myanmar and driven it closer to China. Other conditions include peace with the country's many ethnic groups after decades of sporadic unrest.

MOMENTUM FOR REFORMS

Obama was in Australia ahead of joining Asian leaders in Bali for the East Asia Summit and to signal a closer U.S. engagement with the Asia-Pacific.

Suu Kyi's party said Myanmar's expected ASEAN chairmanship would help to drive political change.

Their decision is tantamount to encouraging the present Myanmar government to step up the momentum for reforms, Nyan Win, a senior official in Suu Kyi's National League for Democracy, told Reuters in Myanmar's biggest city, Yangon.

Myanmar's political activities will become more vibrant after assuming the chair and Myanmar will also become a quality member of ASEAN.

Indeed, Indonesia's foreign minister, Marty Natalegawa, said Myanmar would likely open further after being named ASEAN chair.

I am quite convinced this will have a huge multiplier effect. The decision that ASEAN is about to make is not a vote of confidence or a referendum on what Myanmar is like today. It is instead our expectation of how it will be in 2014. We are putting a marker - this is where you ought to be in 2014.

REAL CHANGES

The United States has had strained relations with Myanmar since the military junta, which took power in a 1962 coup, killed thousands in a crackdown in 1988.

U.S. Secretary of State Hillary Clinton said last Friday that Myanmar appeared to be making some real changes to its political system, but the United States wanted to see more reform before embracing the country formerly known as Burma.

Clinton noted reports of substantive dialogue between the government and Suu Kyi and changes in the country's laws on labour and political party registration.

Myanmar's new government has responded by urging the United States to lift sanctions, describing its reforms as genuine, a line echoed by Natalegawa, who told Reuters the changes were irreversible after visiting the country last month.

Recent overtures by Myanmar's government have included calls for peace with ethnic minority groups, some tolerance of criticism, the suspension of an unpopular Chinese-funded dam project and the legalisation of labour unions. President Thein Sein has also defied sceptics by reaching out to Suu Kyi.

The resource-rich country, as big as France and Britain combined, sits between booming India and China with ports on the Indian Ocean and Andaman Sea that, if developed with proposed rail and pipeline projects, would allow cargo ships to bypass the Straits of Malacca.

That would open the way for faster delivery of oil from the Middle East and Africa to China and other countries in the region straddling the Mekong River.

India, Japan and Southeast Asia have sought to ramp up engagement, largely to counterbalance China's influence and to gain a toehold in a country whose proven gas reserves have tripled in the past decade to around 800 billion cubic metres, equivalent to more than a quarter of Australia's, BP Statistical Review figures show.

(Additional reporting by Michael Perry, James Grubel and Caren Bohan in Canberra and Aung Hla Tun in Yangon.)