Thomson Reuters Foundation

Sierra Leone will auction one of the world's largest diamonds to fund development projects in the impoverished community where it was found, the group managing the sale said on Tuesday.

The 709-carat gem, named the "peace diamond", was found in the eastern Kono region in March by a Christian pastor who handed it over to the West African country's government to sell.

The Rapaport Group, an international diamond trading network, will auction the gem for free in hopes that it will set an example for other diamond sales to benefit the countries from which they come, said chairman Martin Rapaport.

"This diamond is going to help the poorest people in the world. It stimulates the industry to think about what they're selling," Mr Rapaport told the Thomson Reuters Foundation.

A first auction for the egg-sized stone fell flat in May when Sierra Leone rejected the highest bid of $US7.8 million. It hopes to earn more at a new auction in New York on 4th December.

More than 50 per cent of the proceeds will directly fund clean water, electricity, schools, medical facilities, roads, and more in Sierra Leone, particularly in the village of Koryardu where the diamond was found, the Rapaport Group said in a statement.

A government spokesman was not immediately available for comment.

Diamonds fuelled a decade-long civil war in Sierra Leone, ending in 2002, in which rebels forced civilians to mine the stones and bought weapons with the proceeds, leading to the term 'blood diamonds'.

The United Nations lifted a ban on diamond exports from Sierra Leone in 2003, but the multi-million dollar sector is still plagued by smuggling.