In This Story:

• Mutual release of prisoners
• U.N. wants security guarantees

KABUL, Afghanistan (CNN) -- Afghanistan's Islamic Taliban militia, locked in a military standoff with neighboring Iran, will hold peace talks with Tehran in the Saudi Arabian city of Jeddah, a militia spokesman said on Friday.

A Taliban spokesman, Abdul Hai Mutmaen, told Reuters from the militia's headquarters in the southern Afghan city of Kandahar, that an agreement to meet Iranian leaders in Jeddah was reached during a U.N. envoy's visit on Wednesday.

The talks will be held under the auspices of the Organization of Islamic Conference, which is to decide on the dates, he said.

"In the talks we had on Wednesday with (U.N. envoy on Afghanistan Lakhdar) Brahimi, it was agreed upon that for solving the entanglements with Iran a joint delegation meet in Jeddah for talks....We are ready to send our team," he said.

"Our message to Iran will be that war will hurt both of us, economically and politically," Mutmaen said.

Mutmaen said the Taliban would also release 25 Iranians, an agreement on which was reached when Brahimi met Taliban's supreme leader Mullah Mohammad Omar in Kandahar.

The spokesman said tension with Iran had decreased after Brahimi's visit and the militia was ready to release the Iranians in return for release of the Taliban prisoners.

"We hurry in releasing Iranian prisoners under the mediation of the U.N. and Brahimi has assured us that Iran too will free our prisoners," he said.

Brahimi was exempted from a U.N. ban on travel to Afghanistan specifically to try to find an end to the standoff and to determine what security guarantees the Taliban army was ready to offer to allow the United Nations to return to Afghanistan.

The U.N. pulled its international staff out of Afghanistan on Aug. 21 after an Italian U.N. worker was shot and killed and a French worker wounded, apparently in retaliation for the U.S. missile attack on suspected terrorist camps in eastern Afghanistan.

Brahimi said the United Nations wanted security guarantees, as well as a promise from the Taliban to address human rights complaints that have dogged the U.N.'s attempts to provide humanitarian assistance to the war-devastated country.

Predominantly Shiite Muslim Iran is locked in a tense military standoff with the Sunni Taliban, and says it has some 270,000 troops on the Afghan border for military exercises.

Tensions between the Taliban and Iran flared in August after 10 Iranian diplomats and a journalist were killed in the northern Afghan city of Mazar-i-Sharif when it fell to the Taliban. The militia says the Iranians were killed by renegade fighters acting without orders and promised to punish them.

It was not known how many Taliban fighters are in Iran's captivity but opposition groups in Afghanistan hold thousands of militiamen and the Taliban say Iran can help in their release.

Tehran demanded the release of dozens of Iranians held by the Taliban, and an apology for the killings. Some Iranian officials have said the Taliban should hand over the culprits, a demand rejected by the movement's officials.

Mutmaen said the militia felt sorry for the killings but he rejected the demand to apologize or hand over the renegade fighters to Iran.

"Mr. Brahimi raised the issue," he said. "We said that we have our own rules and penal code. If Iran can prove the crime on the Emirate (Afghanistan)....we will apologize... the killing has not taken place in the framework of our official line."

Brahimi, a former Algerian foreign minister now on a mission to ease tensions between Iran and the Taliban, went to Afghanistan on Wednesday after meeting Pakistani and Afghan officials in Islamabad.

He had met Iranian officials during his four day stay in Tehran last week.

The Taliban are battling the last remaining opposition forces led by Ahmed Shah Masood, military chief of the ousted Afghan government.

Masood's forces remain the last obstacle in the Taliban's way of gaining complete control of Afghanistan, 90 percent of which they have already captured.

The Associated Press and Reuters contributed to this report.