The leader of a mutiny 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 Pacific Island nation has been through a prolonged period of political instability, with incumbent Prime Minister Peter O'Neill taking office late last month after Somare was ruled ineligible to be an MP due to a long illness.

Colonel Yaura Sasa claims to head Papua New Guinea's armed forces after soldiers earlier raided barracks and seized their chief commander.

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 said O'Neill must recall parliament and give the nation's 109 members of parliament a seven-day deadline to sort out the constitutional mess.

I have been duly appointed by the government of Sir Michael Somare, he added.

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

Twelve to 20 rebel troops raided Taurama barracks in the capital in the early hours of the morning, before moving to the headquarters of the defence forces, Murray Barracks, the ABC and local media reported.

Rebels put Brigadier General Francis Agwi under house arrest and replaced him with Colonel Sasa, a former defence attaché to Indonesia, it added.

There were no immediate reports of violence at the barracks or in the streets of Port Moresby.

I can confirm that there is a mutiny, the deputy editor of the Post-Courier newspaper, Peter Korugl, told Reuters. Members of the First Pacific Islands Regiment were behind the action, he added.

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.

Australians in the city were told to limit their travel and exercise a high degree of caution.

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'.

Kolma, who drove past Murray Barracks earlier on Thursday, said that although the city was calm, a large number of cars were parked outside the barracks and few people appeared to be going in or out.

There was no obvious display of firearms, he said.

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, though the ABC speculated that some sections of the army could still be supportive of Somare.

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)