BUENOS AIRES (AFP) - Argentina said Wednesday it will pay all its creditors in Buenos Aires, seeking to circumvent a US court order barring it from repaying the debt it restructured after its 2001 default.

The move aims to work around US District Court Judge Thomas Griesa's ruling in favour of two hedge funds that refuse to accept a write-down, which has blocked Argentina from servicing its restructured debt and forced it into a new default.

But it is unlikely to resolve the country's dispute with the two American hedge funds, NML Capital and Aurelius Capital Management, which Argentina calls "vulture funds" for buying up its defaulted bonds at pennies on the dollar and suing for full payment of US$1.3 billion (S$1.6 billion).

Under the plan, which President Cristina Kirchner has sent to congress for approval, Argentina would replace Bank of New York Mellon, the bank responsible for transferring its debt payments to creditors, with Argentine state-run Banco Nacion Trust.

In line with Griesa's ruling, Bank of New York Mellon has frozen a US$539 million interest payment that Argentina was due to make to so-called "exchange" bondholders on June 30.

Argentine Economy Minister Axel Kicillof said the country wanted to pay its creditors.

"Argentina wants to honour its debt payments, and since our payment channel is blocked, we have sought another means," he told a press conference.

The Argentine plan would essentially relocate the country's debt servicing from New York to Buenos Aires, which Kicillof said amounted to a "change of payment site" and not a "change of jurisdiction."

He said creditors would not be required to accept the switch.

"Every bondholder can seek and request another seat of payment," he said.

Kicillof said so-called "holdout" creditors would be welcome to sign up for the plan like all other bondholders, if they accepted the same write-down - which he acknowledged billionaire speculator Paul Singer, the founder of NML's parent company, was unlikely to do.

The holdouts "can come and exchange those bonds and if they do it they will achieve profits of 300 per cent. Is that too little for Mr Singer? Yes, because he's a vulture, but we're going to pay him," Kicillof said.

NML stands to make a profit of 1,600 per cent if it manages to make Argentina pay it the full US$800 million Griesa's ruling awarded it.

The hedge fund declined to comment on Argentina's proposed bank change.

Kirchner has sent a Bill enacting the change to Congress, where her center-left coalition has a majority.

The President would need to sign the Bill into law in time for the switch to be made by Sept 30, when Argentina is due to pay exchange bondholders another US$200 million.

Argentina's 2001 default on US$100 billion in foreign debt, the largest in history at the time, plunged it into a crisis it is still battling back from.

In deals reached in 2005 and 2010, it persuaded most of its creditors to accept write-downs of 70 per cent on their bonds.

But a small minority of bondholders - about 7 per cent - rejected the deals.

In a legal first, Griesa blocked Argentina from repaying exchange bondholders without also paying NML and Aurelius in full.

Argentina appealed the decision all the way to the Supreme Court, which in June declined to hear the case.

Court-ordered mediation to resolve the impasse has so far failed to yield a deal.