UPDATE 1-Dublin welcomes London moves on Northern Ireland Brexit deal

(Adds foreign minister quotes, reaction to UK proposal)

DUBLIN, Aug 16 (Reuters) - Ireland on Wednesday welcomed what it called significant progress in efforts to avoid a hard border between it and Northern Ireland after Brexit, but admitted any such deal would have to be a one-off.

The government in London said on Wednesday in a policy paper that there should be no border posts or immigration checks between the British province and Ireland.

On Tuesday it outlined plans for a future customs agreement with the European Union that would likely define the relationship between Dublin and the province.

The European Parliament's Brexit point-man Guy Verhofstadt dismissed the customs plan, calling the idea of an invisible border a "fantasy".

But Irish Foreign Minister Simon Coveney was more positive.

"Both papers, yesterday and today, are a significant step forward and I think it would be welcomed," he told journalists in Dublin, while cautioning that delivering on their aims would be difficult.

Coveney said Irish hopes that Britain would remain in a form of customs union with the EU had been raised by "some movements in that direction in terms of talking about a ...partnership."

"I think maybe we can build on that and ...actually reassure the European Union that we can maintain the integrity of the single market," he said.

That would however require a "unique political solution" to allow "free uninhibited trade on the island of Ireland".

"I think we have some of that thinking in the paper that is being published today," he added.

Coveney echoed criticism from EU officials of Britain's suggestion of an interim customs agreement with the EU that would allow it to negotiate trade deals with other countries.

He also welcomed apparent acknowledgement from Britain that technological infrastructure such as number plate recognition and tagging of cargos could not solve the fundamental issue of trade between an Ireland in the European Union and a Northern Ireland outside it.

"Only a few weeks ago people were talking about technology solving this problem ... this paper seems to say that type of infrastructure is not going to happen," Coveney said.

(Writing by Conor Humphries and Alistair Smout; editing by John Stonestreet)