BALI, Indonesia, July 22 (Reuters) – U.S. Secretary of State Hillary Clinton on Friday called on Myanmar to free political prisoners, address non-proliferation concerns and start a dialogue with pro-democracy leader Aung San Suu Kyi, saying its refusal to do so threatened the cohesion of Southeast Asia.

Clinton, speaking at a regional security forum of the Association of South East Asian Nations (ASEAN) in Bali, said Myanmar was a major challenge facing the regional grouping and would have to be addressed.

“The choice is clear. They can take these steps and gain back the confidence of their people and the trust of the international community. Or they can continue down the path they’ve been on,” Clinton said.

U.S. President Barack Obama in 2009 launched a new policy of engagement with Myanmar, hoping to coax the reclusive military leadership to relax its nearly 50-year grip on power over the country formally known as Burma.

The junta made way for a civilian government in March following elections late last year that were widely dismissed as a sham, and most analysts say the military continues to call the shots in the jungle capital of Naypyidaw.

The restructuring of power has thrust the issue of Western sanctions back into the spotlight as the former British colony seeks to attract investment and boost economic ties with countries willing to do business there.

Clinton said the impasse in Myanmar represented a challenge the “cohesion and future” of the 10-member ASEAN bloc, long dismissed by many in the West as a talking shop which fails to put vows into action.

“We need ASEAN’s help to persuade Naypyidaw to take reciprocal steps to seriously engage with the international community and address its concerns,” Clinton said.

“We look to the government to unconditionally release the more than 2,000 political prisoners who continue to languish in prison; to conduct meaningful and inclusive dialogue with the political opposition and ethnic minorities, including Aung San Suu Kyi,” Clinton said.

Suu Kyi spent seven years in detention until her release last November.

Clinton said Myanmar must also address “growing concerns” over non-proliferation following reports which have linked Myanmar to banned trade with nuclear renegade North Korea.

ASEAN, also criticised for inaction in reining in Myanmar, has said it would have no objection to Myanmar assuming chairmanship of the organization in 2014 as long as it continued to make progress towards democracy — a move that Clinton suggested could be a mistake.

“The United States respects ASEAN’s decision-making process for selecting its chair. And we trust that ASEAN members will gauge whether a potential chair can advance the organization’s credibility and leadership role.”

U.S. officials have said Clinton is not scheduled to have any meetings with Myanmar Foreign Minister Nyan Win while in Bali, but that he had met the State Department’s top diplomat for Asia, Assistant Secretary Kurt Campbell.(Editing by Nick Macfie)