By Bate Felix and Alexandria Sage

BAMAKO/PARIS (Reuters) - French ground troops and Malian army forces encircled Islamist fighters in the central Malian town of Diabaly on Wednesday, military sources said, as France prepared to launch its first ground assault on the rebels.

France, which has warned that Islamists' seizure of Mali's desert north last year represented a threat to the security of the West, moved a column of armored vehicles on Tuesday into position at the nearby town of Niono, some 300 km (190 miles) from the dusty riverside capital Bamako.

"French forces have secured Niono to stop the Islamists advancing to Segou while the Malian army is securing the border area with Mauritania," said one source. "They are now encircled and a final assault is only a matter of time."

A Diabaly resident, who had fled to Niono to avoid the fighting, reported seeing French and Malian troops leaving in armored vehicles toward Islamist rebel lines.

In a sixth day of air assaults, French fighter jets also struck the headquarters of the Islamic police in Niafunke, near the ancient caravan town of Timbuktu, local residents said.

French army chief Edouard Guillaud said its forces were prepared to dislodge the Islamist fighters from the whole of Mali.

"In the coming hours -- but I cannot tell you if it's in one hour or 72 hours -- yes, of course we will be fighting them directly," he told Europe 1 radio.

French Defense Minister Jean-Yves Le Drian said on Wednesday that the country's campaign against al Qaeda-affiliated rebels in Mali would be long.

President Francois Hollande said on Tuesday French forces would remain in Mali until stability returned to the West African nation. Hollande said France hoped, however, to hand over to African forces in its former colony, "in the coming days or weeks."

Military chiefs from the West African regional bloc ECOWAS met for a second day in Bamako on Wednesday in a bid to hammer out the details of their U.N.-mandated deployment.

(Additional reporting By Tiemoko Diallo; writing by Daniel Flynn; Editing by David Lewis)