UN Secretary-General Kofi Annan said he would recommend later on Friday that talks begin "very soon" on the majority Albanian province of Kosovo and acknowledged that independence from Serbia was an option.
"Today I will inform the Security Council that I want to open discussions about the status of Kosovo," he told journalists during a visit to the Swiss capital.
"Naturally I cannot say now what the result will be. The question of independence has been posed; the question of autonomy has been posed. We will discuss all that with Belgrade, with Pristina," Annan said.
Kosovo's ethnic Albanians, who make up 90 percent of the two million population, demand full independence from Serbia, which says they cannot have it.
In Belgrade, Kosovo's UN governor Soren Jessen-Petersen said the talks would begin "before the end of the year".
Diplomats said the major powers are leaning towards a form of "conditional independence" under the supervision of the European Union.
Kosovo has been under UN administration, and the protection of Nato's biggest peacekeeping operation, since mid-1999 when Serbian forces were driven out to stop what the West said was their persecution of the ethnic Albanian majority during an uprising by Albanian guerrillas.
Some 10,000 Albanians were killed between 1998 and 1999.
Annan's recommendation will go to the 15-member Security Council, which would then vote on the issue later this month, possibly on October 24, according to diplomatic sources.
His recommendation is based on a report by Norwegian diplomat Kai Eide into Kosovo's progress on meeting standards of democracy and minority rights. Serbia says they are far from being met.
Diplomats say the Eide report criticises a lack of progress in improving the lot of 100,000 Kosovo Serbs, half of whom live in Nato-protected enclaves, but will reflect Western concern at prolonging Kosovo's economic and political limbo much longer.
Signalling that Serbia is ready to cry foul if talks are launched by the Security Council later this month, Serbian Prime Minister Vojislav Kostunica told the UN governor that standards were "a key precondition" for talks, his office said.
Kostunica said Serbs in Kosovo were denied basic human rights such as safety, free movement, the right of the displaced to return to their homes and the protection of their heritage.
"Standards before status" had been the West's routine reply to Albanian demands for independence until March 2004, when mass rioting swept the province and 19 people were killed in a wave of arson directed against Serbs and other minorities.
Kostunica has said "tacitly abandoning" that rule is simply giving in to the implicit Albanian threat of further violence if the majority does not get its way.
Kosovo Serb politician Oliver Ivanovic said the talks would be long and hard because there was no magic solution. Partition would be a catastrophe, he said, and independence "would be very dangerous". "A great number of Serbs, in central and especially southern parts and small enclaves, would leave their homes immediately," he told Reuters Television.
Jessen-Petersen, who has called the current situation "unsustainable", said the status negotiations would shuttle between Pristina and Belgrade. Diplomatic sources say the final sessions could take place in Vienna.