Mulesing involves Australian farmers cutting loose skin from the backsides of sheep to discourage flies.

The Australian wool industry, one of Australia's largest rural exporters with annual global sales of around A$2.5 billion (US$2.1 billion) a year, said in a statement on Saturday that it had won an "historic" agreement from PETA to "stop threatening global retailers over the practice of mulesing until December 31, 2010".

PETA had agreed to this, under mediation, in return for the Australian industry body Australian Wool Innovation agreeing to end a legal case brought in the Federal Court of Australia.

"This is a great win for Australian woolgrowers and for international retailers," AWI's deputy chief executive officer Les Targ said.

But PETA's founder Ingrid Newkirk said the group was still calling for a boycott of Australian wool.

"We continue to tell everybody -- shoppers, retailers -- please do not buy Australian wool," she told local radio.

AWI described this as "inevitable spin" by PETA.

"This is a hard fought campaign by Australian woolgrowers that started in October 2004," Targ said.

Pop and movie stars have found themselves at the centre of the campaign between PETA and the Australian wool industry in recent years.

In January this year pop star Pink apologised to Australians for calling on consumers, during a concert in Paris, to boycott Australian wool over the "sadistic" practice of mulesing.

Pink, whose real name is Alecia Moore, later said she had been misinformed.

Australian actress Toni Collette in 2005 signed onto a PETA anti-mulesing campaign before later apolgising.

Mulesing is unique to Australia where hot and humid weather makes sheep particularly vulnerable to severe fly strike. The practice is to be phased out by December, 2010.