"In a meeting with HE the President on Monday 4th of December on that issue I was given the options of signing the license or resign," Bjella said in an email forwarded to Reuters by an NFA spokesman on Saturday.

"I regret to inform you I have submitted a letter... offering to resign."

A presidential spokesman said he could not comment on the discussion between Museveni and Bjella but said Uganda had to weigh environmental versus economic interests.

"We have to balance industry and creation of jobs with conserving forest. Every Ugandan can plant a tree but not every Ugandan can put up a factory," Presidential Press Secretary Tamale Mirundi said.

Uganda's Bidco Group had already removed a chunk of the forest on Bugala island for its palm project but the NFA has dragged its feet on a requested license that would give the company more land, much to Museveni's annoyance.

ECOLOGICAL CONCERNS

Environmentalists say if it goes ahead, the plan could have disastrous ecological consequences, threatening scores of rare species, sparking soil erosion into the lake and potentially drying out Bugala island's favourably wet climate.

In an interview with the state-owned New Vision newspaper, Bjella said the NFA had no legal mandate to give out constitutionally protected forest reserves to be cut down by private companies. That required a change in the law, he said.

"But investors cannot wait for laws to change," Mirundi said. "While they wait, there are other countries that want them."