Sudan's President Omar Hassan al-Bashir will meet his South Sudanese counterpart, Salva Kiir, to defuse tensions between the neighbours after an initial summit was postponed, an African Union mediator said on Friday.

South Sudan became independent in July under a 2005 peace agreement that ended decades of civil war with Khartoum but both sides are at loggerheads over oil payments and a long list of other issues.

Bashir cancelled a meeting with Kiir planned for Tuesday after border fighting between the two neighbours' armies broke out last week, the worst violence since southern secession.

The African Union managed to bring both sides back to the negotiation table this week but talks were adjourned on Wednesday with no progress in sight.

President Bashir confirmed that the summit between him and President Salva Kiir takes place after necessary preparation, former South African President Thabo Mbeki, an AU mediator, told reporters after meeting Bashir in Khartoum. He had earlier met Kiir in Juba.

When and where will be decided after the preparation committee finishes its job, he said.

Mbeki also said Bashir had assured him that hundreds of thousands of South Sudanese living for decades in Sudan would have nothing to fear when their residency runs out on Sunday.

Sudan allowed South Sudanese living in the north until April 8 to stay without valid residency papers as part of a transition since southern secession.

Bashir and Kiir were meant to finalise two agreements to allowing citizens of both countries to live and travel in the north and south without permits.

President Bashir said that there is no reason for southerners to fear negative repercussions, Mbeki said.

Up to 700,000 South Sudanese live in Sudan, many of which arrived in the eighties to escape civil war in the south.

Among other unresolved issues, Sudan and South Sudan need to mark their border and end accusations of supporting rebels in the other's territory.

(Reporting by Khalid Abdelaziz; Writing by Ulf Laessing; Editing by Doina Chiacu)