ADEN, Yemen, Dec 30 (Reuters) - Leaders of Yemen, Sudan, Somalia and Ethiopia urged the U.N. Security Council on Thursday to lift an arms embargo on Somalia to help a transitional government establish its authority over feuding warlords.

Somalia has a one-year-old transitional government that has been struggling to assert power over the squabbling warlords and clan leaders who carved the east African country into fiefdoms after the 1991 overthrow of military ruler Mohammed Siad Barre.

A planned peacekeeping force to support the fledgling government and the Somali peace process has been on hold in part because a 1992 U.N. arms embargo prevents peacekeepers from bringing their heavy weapons into Somalia, mediators have said.

"The leaders called for lifting an arms embargo by the Security Council on peacekeeping troops when they deploy in Somalia to achieve peace and security," said a statement issued at the end of a two-day regional summit in Yemen's southern city of Aden.

Last month, foreign ministers from an east African mediation body, the Intergovernmental Authority on Development (IGAD), said Somalia's fledgling government had the right to arm and equip security forces to stamp its authority.

The ministers, from Somalia's east African neighbours who are leading Somalia's peace process, also recommended the deployment of a military observer mission.

The proposed observer mission would precede the deployment of Ugandan and Sudanese troops to monitor reconciliation, observe cessation of hostilities and disarm combatants.

Many Somali warlords, including those who serve as ministers in the administration, have been buying large shipments of weapons in case fighting breaks out, a report to the U.N. Security Council has said.