By Michelle Nichols

UNITED NATIONS, April 30 (Reuters) - South Sudan's leaders have failed their people by putting their personal ambitions first and if they do not show a willingness to compromise in peace talks they have to face consequences such as sanctions, says United Nations Secretary-General Ban Ki-moon.

In his latest report to the U.N. Security Council, seen by Reuters on Thursday, Ban said the warring parties are recruiting children to fight and restricting the work of U.N. peacekeepers, who are sheltering some 118,000 people at protection sites.

South Sudan plunged into civil war in December 2013 when a political crisis sparked fighting between forces loyal to President Salva Kiir and rebels allied with his former deputy Riek Machar. The conflict has reopened ethnic fault lines that pit Kiir's Dinka people against Machar's ethnic Nuer forces.

Ban said that 16-months of peace talks led by East African bloc IGAD broke down last month "due to the continued intransigence of South Sudan's political leaders and their failure to see beyond their personal ambitions and put the people of South Sudan first."

"Should the parties fail to show willingness to compromise, and continue giving priority to military confrontation, those responsible will have to face the consequences," Ban wrote, noting that the U.N. Security Council in February established a sanctions regime for South Sudan.

The Security Council threatened to blacklist anyone undermining security or interfering with the peace process in South Sudan, but it has not yet imposed worldwide travel bans and asset freezes on any officials in the conflict-torn country.

He called on "President Kiir and Riek Machar to cease all military operations immediately, release all children mobilized within their ranks and engage in meaningful dialogue on all outstanding issues towards the establishment of a transitional government of national unity."

South Sudan's parliament voted last month to extend Kiir's term in office by three years, and Ban said this should not disincentivize the government to make the necessary compromises to reach a peace deal.

Ban said more than 1.5 million people had been displaced in South Sudan, while a further 500,000 have fled to neighboring countries. Some 2.5 million people do not have enough to eat and more than 4 million need water, sanitation and hygiene services.

The United Nations has more than 12,000 peacekeeping troops and police in South Sudan. Thousands of people have been killed during the renewed conflict in the country, the world's youngest.

(Reporting by Michelle Nichols; Editing by Steve Orlofsky)