By Sui-Lee Wee

BEIJING (Reuters) - Chinese officials have lifted a ban on Tibetan monks displaying photographs of the Dalai Lama at a prominent monastery, a rights group said on Thursday, an unexpected policy shift which could ease tensions in the restive region.

The decision concerning the Gaden monastery in the Tibetan capital Lhasa - one of the most historically important religious establishments in Tibet - reversed a ban introduced in 1996, the UK-based Free Tibet group told Reuters, citing sources with direct knowledge of the situation.

It was made as similar changes are being considered in other Tibetan regions of China, and may signal authorities are contemplating looser religious restrictions and a policy change over Tibet, three months after President Xi Jinping took office.

Chinese officials in western Qinghai province are also considering lifting a ban on Tibetans displaying pictures of the exiled spiritual leader, according to the International Campaign for Tibet, a U.S.-based advocacy group.

It said there were also draft proposals in the region to end the practice of forcing Tibetans to denounce the Dalai Lama, and to decrease the police presence at monasteries.

Officials in Lhasa and Qinghai could not immediately be reached for comment.

Such measures appear calculated to reduce tensions between the Tibetans and the government after a series of Tibetan self-immolation protests against Chinese rule.

Beijing considers the Dalai Lama, who fled China in 1959 after an abortive uprising against Chinese rule, a violent separatist. The Dalai Lama, who is based in India, says he is merely seeking greater autonomy for his Himalayan homeland.

Since 2009, at least 120 Tibetans have set themselves on fire in China in protest against Beijing's policies in Tibet and nearby regions with large Tibetan populations. Most were calling for the return of the Dalai Lama.

"Tibetans' reverence for and loyalty to the Dalai Lama has almost no equal among the world's communities and if this policy is extended beyond this individual monastery as other reports suggest, it will be very significant for the Tibetan people," Free Tibet spokesman Alistair Currie said.

The new policy at the Gaden monastery and the discussions in Qinghai come after a scholar from the Central Party School published an essay questioning China's policy on Tibet.

So far, President Xi has said very little publicly about Tibet. His late father, Xi Zhongxun, a liberal-minded former vice premier, was close to the Dalai Lama. The Tibetan leader once gave the elder Xi an expensive watch in the 1950s, a gift the senior party official still wore decades later.

"There's increasingly a view that due to the critical nature of the situation of Tibet, a discussion of a change in some hardline policies is merited and there's a need for the Dalai Lama to be involved in some way," Kate Saunders, spokeswoman for the International Campaign for Tibet, told Reuters.

Saunders said that Tibetans at the meeting raised the possibility of the draft proposals in Qinghai being implemented either in August or September. (Reporting by Sui-Lee Wee; Editing by Pravin Char and Eric Walsh)