* Insurgents quickly reject call for negotiations
* Fazlullah's rise prompted talk of army offensive
* He says negotiations are meaningless, ready for attack (Adds Taliban reaction)
By Maria Golovnina
ISLAMABAD, Dec 17 (Reuters) - Pakistan ruled out military action against the Taliban on Tuesday and promised to pursue peace only through talks, but the insurgents immediately rejected its call for negotiations.
Mullah Fazlullah, the Pakistani Taliban's new hardline leader, says peace talks are meaningless and has pledged to step up attacks as part of his campaign to topple the central government and establish Islamist rule in Pakistan.
The emergence of Fazlullah has prompted speculation that Pakistan might have to ditch hopes for a negotiated ceasefire and resort to military action against militants holed up in lawless ethnic Pashtun areas on the Afghan border.
But on Tuesday, the government said the Taliban's tough rhetoric did not mean negotiations had failed.
"Their public posturing is different from what's going on in the background," said Tariq Azeem, a senior official in Prime Minister Nawaz Sharif's team. "They want to appear tough but back channels show that they are also interested in talks."
The Taliban immediately dismissed the concept of peace talks.
"Like previous governments this one is a puppet of the United States. It's powerless and dollar-hungry," said Shahidullah Shahid, a Pakistani Taliban spokesman.
He told Reuters the Taliban had information that plans were already under way for a state military operation, saying the Taliban were ready for battle.
"They should happily launch a military operation against us. We have seen their military operations in the past and would like them to start this long-awaited operation," he said defiantly.
Under Fazlullah, Taliban fighters took over Pakistan's Swat valley in 2009, imposing austere Islamic rule and eventually prompting the army to launch a major offensive to flush them out of the strategic region just 160 km (100 miles) northwest of Islamabad.
Sharif chaired a meeting of the Cabinet Committee on National Security on Tuesday where officials confirmed their commitment to talks rather than military action.
"The Committee deliberated upon the government's strategy to engage various groups of Pakistani Taliban to address issues of extremism and militancy," Sharif's office said in a statement.
"The Committee reaffirmed (the) government's commitment to the strategy of negotiations with TTP (Pakistani Taliban) and consider the use of other options only as a last resort."
Nicknamed "Mullah Radio" for his fiery broadcasts in Swat, Fazlullah is best known for ordering the assassination of teenage female education activist Malala Yousafzai. She survived the attack and now lives in Britain.
Fazlullah has now promised a new campaign of shootings and bombings against the government, particularly in the densely populated Punjab province - Sharif's political powerbase.
But, a month after he took over as the Taliban chief, there have been no major attacks in Pakistan.
The Pakistani Taliban are allied with the Afghan Taliban but Afghan Taliban militants are intent on expelling foreign forces from Afghanistan and do not fight the Pakistani government.
Fazlullah, who fled to Afghanistan after the 2009 operation, has now returned to his homeland to lead the insurgency.
He was named the leader last month after his predecessor, Hakimullah Mehsud, was killed in a U.S. drone strike on November 1. Unlike Fazlullah, Mehsud had been more open to idea of talks. (Editing by Robert Birsel and Andrew Heavens)