The prices, three percent better than those offered by Australian miners to Japan and South Korea, follows weeks of uncertainty caused by China's detention of a senior Rio Tinto executive.

Fortescue said it had agreed to sell iron ore fines -- the most commonly traded product -- at 94 US cents per dry tonne unit, on condition of completion next month of finance worth 5.5 to 6.0 billion dollars.

"This ground-breaking agreement cements the strength of the bilateral relationship between Australia and China in which mutual issues can be resolved and future opportunities identified," chief executive officer Andrew Forrest said.

"The ongoing market speculation has promoted unprecedented iron ore and steel price volatility, which in turn has created extreme production uncertainties for Chinese steel mills and for suppliers setting individual contracts with those mills.

"This agreement eliminates that price uncertainty, sets a solid platform for Fortescue to deliver increased product into China and affirms our close working relationship with CISA and all Chinese steel mills."

The China Iron and Steel Association (CISA), quoted by official Chinese media, said the prices were a drop of 35.02 percent compared with last year. It added that talks with other miners were continuing.

"The result was reasonable, objective and market-based, which shall benefit all parties," CISA vice chairman Liu Zhenjiang said in a statement, calling the deal an "important step".

China's commerce ministry welcomed the deal as "positive", spokesman Yao Jian told reporters in Beijing. Iron ore imports account for about 50 percent of total consumption in China, the world's leading buyer of the product.

Australian producers and CISA had missed the June 30 deadline in yearly iron ore contract talks as China, the world's biggest steel producer and consumer of iron ore, insisted it should get better prices than other Asian mills.

The negotiations were complicated by the arrest of Rio Tinto executive Stern Hu, an Australian national who was leading the talks, and three of his Chinese colleagues on suspicion of industrial espionage and bribery.

Rio on Monday shrugged off the deal as irrelevant to its own price talks with China.

"We do not see this pricing agreement as relevant to our pricing for fiscal 2009," a company spokesman told Dow Jones Newswires.

"Rio Tinto conducts its own negotiations with its customers worldwide. Whether and how other producers reach their own agreements is up to them."

Analysts said Fortescue, Australia's third biggest iron ore exporter, was looking to capitalise on frictions between China and other producers over the contract talks.

"There is no doubt that Fortescue is looking to take advantage of the poor relations that currently exist between BHP and Rio Tinto with the Chinese," said IG Markets analyst Cameron Peacock.

"Andrew Forrest has obviously been going all-out to present himself as a viable alternative for supply of iron ore to Chinese steel mills and based on the agreement announced today they seem to be taking the bait."

Fortescue shares closed up 2.92 percent to 4.58 Australian dollars after the deal was announced.

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