TAIPEI, Sept 7 (AFP) - The Taiwanese government in a low-key move has quietly given approval to the Dalai Lama and his Tibetan government in exile to set up an office in Taipei, it was reported here Sunday.

The inauguration of the office will mark a milestone in ties between Taiwan and Tibet, but could further harm already frosty relations with Beijing, the United Daily News said.

"It will help facilitate the exchange of Han and Tibet cultures and spread Buddhist doctrines here," Kao Koong-lian, chairman of Taiwan's cabinet-level Mongolian and Tibetan Affairs Commission, was quoted as saying.

Han Chinese are the majority ethnic culture in both Taiwan and China, which split at the end of a civil war in 1949.

There are about 500,000 Buddhists following various Tibetan sects on the island.

In a bid to downplay the move, the office will be set up under a 30 million Taiwan dollar (1.05 million US) foundation donated by local Buddhists.

"Only a little more than one million Taiwan dollars was contributed by the Tibetan govenment in exile," Master Tao Kuang of the Buddhist Association said, while the remainder was donated by dozens of local followers.

Master Tao Kuang declined to identify the contributors, but he maintained "not even one penny was from the government of the Republic of China (Taiwan's official title)."

The Dalai Lama, the Tibetan spiritual leader, will be the honorary chairman of the foundation.

The Dalai Lama captivated the hearts of Taiwanese on his six-day visit to Taiwan in March, receiving an estimated 18 million Taiwan dollars in donations from pious Buddhist deciples.

His visit included meetings with Taiwanese President Lee Teng-hui and other officials on the island, in a move which sparked fury from China. And he repeatedly called for a Tibetan office to be set up on the island.

Beijing accused the Dalai Lama of trying to "trick" the international community, and charged that Lee was acting to split the motherland.

China considers Taiwan, where nationalist troops sought refuge from the communist forces of Mao Zedong after the civil war, a renegade province.

The Dalai Lama has lived in exile in northern India since the crushing of an anti-Chinese uprising in Tibet in 1959.

The paper said the exiled-government's outgoing representative to England was expected to be appointed soon as the first representative to Taiwan.