TAIPEI, March 27 (AFP) - The Dalai Lama held a landmark meeting with Taiwan President Lee Teng-hui here on Thursday opening a new chapter in relations despite fierce protests from China.

The watershed meeting came on the final day of the exiled Tibetan leader's six-day visit to Taiwan and signalled that the two sides had finally put behind them decades of suspicion and distrust.

In a departure from normal protocol, Lee, accompanied by his wife Tseng Wen-hui, walked out of the official government Taipei Guest House to warmly shake hands with the Tibetan Buddhist leader at the entrance.

Smiling, they then walked hand in hand into the building, where the president presented the Dalai Lama with a crystal sculpture depicting the Tibetan leader in front of the Potala Palace in the Tibetan capital Lhasa.

Beijing has launched angry protests at Taiwan leaders and the Dalai Lama for arranging the meeting, accusing them of working to carve up China.

China has viewed the island as a renegade province since nationalist troops fled here in 1949 after a civil war.

But the Dalai Lama insisted at a press conference after the 45-minute meeting that he was not seeking to anger Beijing but to pave the way for a closer understanding, repeating that he wanted autonomy not independence for Tibet.

"In the long run this visit could be a new opening to a closer understanding between the two communities. This is what I want to make clear to my brothers and sisters in mainland China," he said.

"After all the Tibetan problem is neither good for Tibet or China. We have to find an appropriate solution," he added.

Chinese troops marched into Tibet in 1951, and eight years later brutally suppressed an uprising against their rule, causing the Dalai Lama and his government to flee along with tens of thousands of people.

The Tibetan Buddhist leader said since then he had taken a mid-way approach, adding: "I believe very much in the spirit of 'one country, two systems'," referring to China's plan for the future governing of Hong Kong once it returns to Chinese rule on July 1.

Beijing has also offered the system to Taiwan, which has rejected the idea, but has not made similar approaches to Tibet.

The Dalai Lama has also won a pledge from pro-independence opposition leaders to help set up a Tibetan office on the nationalist island.

And observers here have said that Lee was walking a tightrope in meeting with the Dalai Lama, with China having angrily reacted in the past to any steps seen as promoting the island's independence.

The political symbolism of pictures of their warm handshake flashed around the world will not be lost on the communist government in Beijing, even though both men stressed they had discussed spiritual issues.

However, a statement issued by Lee's office voiced hopes that Taiwan and the Tibetan government in exile could build on their fledgling ties.

"The president highlighted the importance of cultural exchanges with Tibet, and hopes to further enforce this," the statement said.

The Dalai Lama also met Vice President and Premier Lien Chan who "admitted there had been unnecessary misunderstandings in the past. Now this is a new beginning," government spokesman Su Chi told a press conference Wednesday.

Thursday's meeting put a final seal on a 10-year thaw in Tibetan-Taiwan relations begun when the Dalai Lama published a five-point plan in 1987 calling for talks with China.

Taiwan still lays claim to Tibet as part of Chinese territory, of which it says it is the sole and rightful government.

The visit has also struck at the heart of political debate on whether Taiwan should be seeking independence or reunification with China, and a small group from the Taiwan pro-reunification Labour Party protested Thursday's meeting.

The Dalai Lama's visit has provided a new spur to independence activists on the island, many of whom became political prisoners under marshal law which was only lifted in 1987 and under which campaigning for independence was banned.

During the visit, the Dalai Lama led three mass prayer meeting including an initiation ceremony and travelled around the island preaching Buddhist teachings.