The leader of a small band of soldiers who mutinied in Papua New Guinea on Thursday demanded the governor-general reinstate former Prime Minister Michael Somare and set a seven-day deadline for lawmakers to resolve a constitutional crisis.

The resource-rich Pacific Island nation has been through a prolonged period of political instability, with incumbent Prime Minister Peter O'Neill taking office in August, 2011, after Somare was ruled ineligible to be an MP due to a long illness.

Residents in Port Moresby said the dusty port capital was quiet, but tense, with roadblocks around the main army barracks.

PNG has a history of political and military unrest. An army mutiny in 1997 overthrew the then government after it employed mercenaries to try and end a long-running secessionist rebellion on the island of Bougainville.

In the early hours of Thursday, some 12 to 20 soldiers raided the main army barracks, seized their chief commander, placed him under house arrest and appointed a new commander.

Rebel Commander Colonel Yaura Sasa then demanded that Somare be reinstated as prime minister, upholding a court ruling late last year that he was still be an MP and therefore leader of the South Pacific island nation.

My task is restoring the integrity and respect of the constitution and the judiciary, Sasa told reporters in the commander's office in Port Moresby's Murray barracks.

I am now calling on the head of state (Governor General Sir Michael Ogio) to immediately implement Sir Michael's post as prime minister.

He sat alone at a desk when he held his news conference, no other soldiers standing around in sign of support.

A few hours later, Deputy Prime Minister Belden Naemah said some 15 Sasa supporters had been arrested and called on the mutineers to surrender to police, warning that treason carries a death penalty.

For Somare to use rogue policemen and rogue soldiers to pursue his own greed and selfishness is really a sad situation for a person who claims to be the father of the nation -- you have lost sanity, Namah told a news conference in Port Moresby.

Sasa demanded O'Neill recall parliament and give its 109 members a seven-day deadline to sort out the constitutional mess.

I have been duly appointed by the government of Sir Michael Somare, he added. Somare has not been contactable.

When Reuters contacted the Governor-General's office it did not even know of the mutiny.

CRISIS JEOPARDISES INVESTMENT

PNG's ongoing political crisis has jeopardised its prospects as an investment destination just as U.S. oil giant ExxonMobil develops a $15.7 billion (10.0 billion pounds) liquefied natural gas plant, the country's biggest-ever resource project.

Exxon spokeswoman Rebecca Arnold said the company had been monitoring developments.

At this stage, it's business as usual, she said.

PNG, a country of 6.5 million people, has vast mineral wealth although 85 percent of its people live a subsistence village life. The capital Port Moresby is plagued by lawless and often violent raskal gangs of youths.

PNG's military is careful to balance its membership from among the nation's regions and clans, ensuring no single ethnic group can take control or command enough support for a coup.

Local reporters said it was unclear how much support the rebels had inside the military, believing they may be only a small band, with most soldiers either backing O'Neill or dissatisfied with both O'Neill and Somare.

Neighbouring Australia called for a restoration in the line of command in Papua New Guinea's defence forces.

We urge that the situation be resolved as soon as possible, and that the Papua New Guinea Defence Force chain of command is restored, the foreign ministry said in a statement.

It added, however, that an Australian diplomat had spoken to Agwi since his seizure, lending weight to reports that Papua New Guinea authorities were trying to calm the situation.

Frank Kolma, the editor in chief of The National newspaper in Papua New Guinea, said the rebels were using the phrase 'Operation Protect the Constitution'.

We hear that the commander has been asked not to leave his house. He is virtually under house arrest at Murray Barracks in the centre of Port Moresby, Kolma told Reuters.

Last month, O'Neill declared victory in the standoff against Somare after the governor general named him the legitimate head of government. The country's civil service, police and army leaders also backed O'Neill.

For many Papua New Guineans, the crisis is a contest between the old political guard of Somare -- known as The Chief who led the country to independence -- and O'Neill's administration, which is seen offering a fresh, more open alternative.

Elections are due in June.

(Reporting by Lincoln Feast and Chris McCall; Writing by Mark Bendeich and James Grubel; Editing by Jonathan Thatcher)