U.S. government lawyers have begun talks with cigarette makers to try to settle the government’s racketeering case against the industry, a source close to the case said on Tuesday.

The Justice Department has met at least once with tobacco industry lawyers and a court-appointed mediator, but the source said both sides are under orders by the presiding judge not to discuss the settlement efforts.

The talks, reported by The Wall Street Journal in its Tuesday edition, came at the request of the trial judge in the case, U.S. District Judge Gladys Kessler, said the source, who declined to be identified.

Representatives of the tobacco companies either declined to comment on the settlement talks or were unavailable. A spokesman for the Justice Department declined to comment.

The talks come at a time when both sides are under pressure to resolve the five-year legal battle.

Lawyers for the government have more incentive to settle since a Feb. 4 federal appeals court panel ruling that barred them from seeking billions of dollars in past industry profits.

The government had been seeking the “disgorgement” of up to $280 billion in past profits. It has since asked the full appeals court to reconsider last month’s ruling.

For Altria Group Inc., the parent company of industry leader Philip Morris, a settlement would help clear the way for a planned spin-off of its Kraft Foods Inc. affiliate.

Altria Chairman Louis Camilleri said in November that any such spin-off would have to wait until U.S. tobacco litigation hurdles were cleared.

The case has been in trial before Judge Kessler since September. The Justice Department has called dozens of witnesses, trying to prove that the industry conspired to mislead the public for decades about the dangers of Smoking.

Targeted in the government’s lawsuit, filed in 1999, are Altria and Philip Morris; Loews Corp.‘s Lorillard Tobacco unit, which has a tracking stock, Carolina Group; Vector Group Ltd.‘s Liggett Group; Reynolds American Inc.‘s R.J. Reynolds Tobacco unit; and British American Tobacco Plc unit British American Tobacco Investments Ltd.

The S&P Tobacco Index was up 1.1 percent in late afternoon trading.

The tobacco companies deny they illegally conspired to promote smoking and say the government has no grounds to pursue them after they drastically overhauled marketing practices as part of the 1998 settlement with state attorneys general.

Talk of settlement renewed concerns among anti-smoking groups about whether the government would continue to pursue the case aggressively.

The lawsuit was launched under the administration of former president Bill Clinton. And anti-smoking groups have long feared that the Bush Administration would settle the case on terms favorable to the industry.

“The administration should reject such efforts and act to protect the public health instead,” the anti-smoking group Campaign for Tobacco Free Kids said in a statement on Tuesday.