MEXICO has effectively legalised the country's growing number of "self-defence" groups as security forces captured one of the four top leaders of the Knights Templar drug cartel which vigilante groups have been fighting for the last year.

The government said it had reached an agreement with vigilante leaders to incorporate the armed civilian groups into largely forgotten quasi-military units called the Rural Defence Corps.

The country's vigilante groups estimate they have 20,000 men under arms.

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The two announcements may help the administration of President Enrique Pena Nieto find a way out of an embarrassing situation in the western state of Michoacan, where vigilantes began rising up last February against the Knights Templar after police and troops failed to stop their reign of terror.