Classified as a "terrorist organisation" by Addis Ababa, the OLA, an armed insurgent movement from the Oromia region, has been fighting the government since 2018, after splitting from the Oromo Liberation Front (OLF) when it renounced armed struggle.
"It's been going on for almost 10 days," a diplomatic source told AFP on condition of anonymity, adding that the East African regional bloc IGAD was "playing the central facilitation role."
The talks are "going very well," he said, without elaborating on the venue or the time frame for the discussions.
"Both the sides are optimistic of a deal."
An earlier round of talks, between late April and early May, ended without any agreement.
Although both parties expressed a willingness to continue discussions, the OLA later accused the government of launching a large-scale offensive against the rebels, "contrary to the spirit of de-escalation we had hoped for".
The Oromo community, Ethiopia's largest ethnic group, has long complained of marginalisation.
Since the OLA broke off from the OLF and started fighting, a string of armed groups have risen up in Oromia claiming to be part of its cause, although they are only loosely tied.
The OLA's strength, estimated at a few thousand men in 2018, has increased significantly in recent years, though observers believe it is insufficiently organised or well-armed to pose a real threat to the federal government.
Oromia, which surrounds the capital Addis Ababa, has suffered ethnic massacres in recent years carried out by unknown groups, particularly in the Qellem Wollega and West Wollega areas.
The OLA has been repeatedly accused by the government of Prime Minister Abiy Ahmed -- himself of Oromo descent -- of being responsible for the killings, a charge it denies.
The government in turn is accused of waging an indiscriminate crackdown that has fuelled Oromo resentment against the central government.
A mosaic of more than 80 ethno-linguistic communities, Ethiopia has struggled to manage rival claims to territorial and political power.
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