CORRECTED-UPDATE 1-Egypt says dam dispute with Ethiopia not yet a military one

(Corrects title of General al-Sisi in paragraph 6 and 7)

* Military spokesman plays down chief of staff's rhetoric

* Egyptian foreign minister to travel to Ethiopia on Sunday

* Ethiopia says will not suspend dam construction

By Maggie Fick and Aaron Maasho

CAIRO/ADDIS ABABA, June 12 (Reuters) - Egypt's armed forces are not yet involved in a dispute with Ethiopia over a giant dam on the Nile, a spokesman for the general staff said on Wednesday, playing down bellicose rhetoric between Cairo and Addis Ababa.

"This is not a military issue at this stage," Ahmed Mohamed Ali told Reuters after days of irate exchanges between Africa's second and third most populous nations over a new hydroelectric plant that Egypt fears will reduce its vital water supply.

On Monday, Egyptian President Mohamed Mursi said he did not want "war" but would keep "all options open", prompting Ethiopia to say it was ready to defend the Great Renaissance Dam.

Egypt's previous military rulers had warned against such projects in the past and last week Egyptian politicians were caught on camera discussing air strikes or offering support to Ethiopian rebels.

"It's too early to involve the army in this problem at the moment," Ali said.

Earlier on Wednesday, the commander-in-chief of Egypt's armed forces issued a statement saying that the military was "ready and able to protect the nation and preserve its sacred sites".

General Abdel Fattah al-Sisi, who is also the defense minister, made the comments during a training exercise that included special forces paratroopers, according to a statement on his Facebook page.

The spokesman said Sisi's words were aimed at giving soldiers at the training exercise "a message about their role in defending the interests of Egypt". Analysts said Sisi's comments appeared directed more at groups planning street protests for and against Mursi's administration at the end of this month.

Ethiopia has dismissed talk of military action as "psychological warfare".

NO DELAY

Egyptian Foreign Minister Mohamed Kamel Amr is expected to travel to Addis Ababa on Sunday for talks about the dam, but Ethiopia's foreign ministry said on Wednesday the country had no intention of suspending construction.

Dina Mufti, spokesman at Ethiopia's foreign affairs ministry, told reporters that talks with Egypt were "in the spirit of Ethiopian interest".

"Ethiopia has always been open and we've always been interested in discussions," he said, speaking in English.

Dina added "in the strongest possible terms" that Ethiopia would not accept any proposal to halt or delay construction.

The African Union urged both sides to hold talks to resolve the row.

"It would be important to just have discussions that are open, that look at how we can have a win-win situation in a new context, not in the context of the colonial powers, but in the context of pan-Africanism and African renaissance," the bloc's Nkosazana Dlamini-Zuma told a news conference.

With its 84-million population dependent on the Nile, Egypt cites colonial-era treaties guaranteeing it the lion's share of the water.

Ethiopia and other upstream neighbours, including Kenya, Uganda and Sudan, say those claims are outdated. (Reporting by Aaron Maasho; Editing by Alastair Macdonald and Robin Pomeroy)

>reuters