The decision overturned death sentences that would have been carried out by firing squad and gave the nurses and their supporters new hopes that after seven years behind bars they could one day be released.

"The court has accepted the appeal of the Bulgarian nurses and ordered that a new trial will take place at the criminal court of Benghazi," the town in northern Libya where the infections took place, court President Ali al-Alus said.

Libyan Justice Minister Ali Hasnawi told AFP the new trial would be held "in one month" and there would be "new judges".

The ruling had been postponed until January 31 but Libya was keen to speed up the process as it bids to return to the international fold following leader Moamer Kadhafi's renouncement of weapons of mass destruction two years ago.

The move was quickly welcomed by Bulgaria, the United States and the Council of Europe.

"The unfair death sentences were reversed... We hope that the swiftness and the effectiveness demonstrated by the Libyan court in the past days will help to solve the case as soon as possible," Bulgarian President Georgy Parvanov said.

US State Department spokesman Justin Higgins said the international community had been working with Libya to find an "overall solution".

"We believe a way should be found to allow the medics to return to their home," he said.

In Strasbourg, Council of Europe Secretary General Terry Davis said: "I hope that the new trial will begin soon and that it will comply with the internationally recognised standards of fairness and due process."

The hearing Sunday on the admissibility of the nurses' appeal lasted barely an hour. The accused were not present in court.

The families of the children protested the decision outside the court, shouting: "This is injustice, this is injustice". They later took their protest to the centre of Tripoli, brandishing pictures of their dead children.

The nurses stand accused of transfusing HIV-contaminated blood into 426 children at a Benghazi hospital on Libya's Mediterranean coast. Around 50 of them have since died of AIDS.

"We are going to ask for their release next month at the Benghazi court. Perhaps the court will agree to our demand," said defence lawyer Othman al-Bizanti.

It remains unclear what the prospects are for the nurses' eventual release, after the surprise announcement just days earlier by Bulgaria that it was creating a fund for AIDS-infected children in Libya.

Libyan media reports have suggested that the families of the children have agreed to drop their demands for the nurses to receive the death penalty in exchange for compensation. Unconfirmed reports have also suggested the nurses could even be freed once this is agreed.

Parvanov said last week that there was "light at the end of the tunnel but a release would "have a very high price". He did not mention the nature of this price.

After Bulgaria announced it would set up the fund, a Libyan official said there were "indications of a possibility of concluding this matter in a positive way".

The fund, whose size has not been specified but aims to aid the families of the victims, was agreed to in talks last week in Tripoli which also included representatives of the European Union, the United States and Britain.

However the lawyer for the victims' families, Abdallah al-Moghrabi said: "It is seven years that we are waiting for justice to be done. It is a shame we have still obtained nothing and the decision has been made at the families' expense."

All six defendants pleaded not guilty ahead of their conviction in May 2004. Two of the nurses and the doctor said during the trial that they were tortured into confessing.

The Benghazi court that first condemned the medics had rejected testimony from foreign experts that the epidemic was due to a lack of hygiene.

Instead the court based its verdict on a report by Libyan experts that blamed the foreign health workers.

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