A Myanmar court Friday rejected an appeal by pro-democracy icon Aung San Suu Kyi against her extended house arrest, just days after the US re-engaged with the country's ruling junta.

Judges at a divisional court in Yangon upheld the Nobel Laureate's conviction, her lawyer said, over an incident in which an American man swam uninvited to her home, earning her an extra 18 months in detention.

"The appeal was rejected but we will take it to the high court," said Suu Kyi's lawyer and the spokesperson for her National League for Democracy (NLD) party, Nyan Win, after the hearing.

Asked whether he was disappointed, the lawyer said Suu Kyi might have a better chance at Myanmar's high court.

Suu Kyi was not present for the verdict, which was delivered amid tight security with uniformed and plain-clothes policemen patrolling the area.

Military-ruled Myanmar has faced intense international pressure to free the opposition leader, especially from the United States which Tuesday held its highest-level talks with Myanmar in nearly a decade.

The Obama administration's decision to start a dialogue with Myanmar came after years of stalemate proved unproductive. But Washington has warned against lifting sanctions until the junta moves on democracy.

The US side demanded the release of Suu Kyi and other political prisoners when it met with the Myanmar delegation in New York, according to Kurt Campbell, US assistant secretary of state for East Asian affairs.

Suu Kyi's lawyers had hoped for her unconditional release, but the appeal result was as expected, according to a Bangkok-based European diplomat.

"The facts on the ground remain that she remains locked up. It shows that (the junta) are not ready to compromise on anything or bow to whatever new initiative has been launched," the diplomat said.

In August, a court at Yangon's notorious Insein prison sentenced the frail 64-year-old to three years' hard labour, but junta chief Than Shwe reduced that to 18 months' house arrest.

Two female assistants living with Suu Kyi received the same sentence and also lost their appeals on Friday.

John Yettaw, the eccentric American who triggered the debacle by swimming to Suu Kyi's lakeside mansion in May, was sentenced to seven years' hard labour in August, but the regime freed him following a visit by US Senator Jim Webb.

Suu Kyi's extended house arrest will keep her off the scene for elections promised by the regime for 2010, adding to widespread criticism that the polls are a sham designed to legitimise the junta's grip on power.

The NLD won the country's last elections by a landslide in 1990, which the ruling generals refused to acknowledge, leading the US and European Union to impose sanctions.

After meeting the Myanmar delegation in New York on Tuesday, Campbell said that "lifting or easing sanctions at the outset of a dialogue without meaningful progress on our concerns would be a mistake".

"There were certainly no breakthroughs, but a very clear determination that dialogue was possible on the side of Burma," added Campbell, using Myanmar's former name.

Suu Kyi welcomed US plans to begin a dialogue and has recently eased her stance on sanctions, after years of espousing punitive measures against the ruling generals.

Nyan Win said last week that she has written to regime leader Than Shwe, offering suggestions about how to get Western sanctions against the country lifted.

Myanmar has been under military rule since 1962, with brutal crackdowns on anti-junta protests in 1988 and 2007.