By Michelle Nichols

UNITED NATIONS, July 26 (Reuters) - A United Nations peacekeeping mission in disputed Western Sahara is still not fully functional, the U.N. Security Council president said on Tuesday, months after Morocco expelled dozens of civilian staff in anger at remarks by U.N. chief Ban Ki-moon.

During a visit to refugee camps for Sahrawi people in March, Ban described Morocco's 1975 annexation of Western Sahara as an "occupation," sparking the worst dispute between Rabat and the world body since the U.N. brokered a ceasefire to end a war over the disputed region and established the U.N. mission MINURSO.

In April the Security Council extended MINURSO's mandate for another year and demanded urgent restoration of its full functionality. The United Nations has been in talks with Morocco and this month 25 civilian staff were allowed to return.

"There was agreement by the (U.N.) secretariat as well as the council members that we have not reached that goal of full functionality," Japanese U.N. Ambassador Koro Bessho, council president for July, told reporters after U.N. peacekeeping chief Herve Ladsous briefed the 15-member council on the situation.

Before the staff reductions, MINURSO had nearly 500 military and civilian personnel.

Morocco's U.N. Ambassador Abdeslam Jaidi declined to say how many civilian staff Rabat would allow to return. He said the focus is not on a number but on the efficiency of the mission.

"The (U.N.) secretariat is very satisfied with what's going on," he told reporters.

Security Council members expressed "strong hope" that the U.N. mission in Western Sahara could return to full functionality as soon as possible, Bessho said.

U.N. spokesman Farhan Haq said there was agreement on a phased return of staff and the first phase of that deal was the return of 25 staff.

"We'll have to see what further returns can happen and of course we'll also have to see what the response is of the Security Council to the developments that have been achieved thus far," Haq said earlier on Tuesday.

The Sahrawi people's Polisario Front movement, which demands self-determination for Western Sahara, wants a referendum on independence. Morocco, which took over Western Sahara from colonial power Spain, says it will only grant autonomy.

Bessho said many council members also "pointed to the importance of the resumption of direct negotiations towards a political solution that will provide for the self determination of the people of Western Sahara."

(Reporting by Michelle Nichols; Editing by Chris Reese) ((michelle.nichols@thomsonreuters.com; +1 646 223 6117; Reuters Messaging: michelle.nichols.reuters.com@reuters.net; Twitter: @michellenichols))