Suu Kyi said her new government was determined to address deep hatreds in western Rakhine State, where tens of thousands of Rohingya are confined to squalid displacement camps after waves of deadly unrest with local Buddhists in 2012.
Buddhist nationalists have staged protests across the country against using the term Rohingya.
They label the group "Bengalis", casting Myanmar's more than one million Rohingya as illegal immigrants from Bangladesh.
The words carry "all kinds of political and emotional implications which are unacceptable to the opposite parties," she added.
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Suu Kyi, who has faced criticism internationally for not speaking up for the Rohingya, pledged to work towards a situation where the communities "live peacefully and securely outside the camps".
"That is why we say that we need the space to build up trust and security within the community", Suu Kyi added.
Myanmar's Rohingya population are denied citizenship even though many can trace their roots in the country back generations.
Kerry praised his counterpart for explaining her approach to the incendiary issue.
"At the same time we all understand as a matter of fact that there is a group here in Myanmar that calls itself Rohingya," he added.
The US says it backs the rights of all ethnic groups to identify as they wish.
In recent weeks Washington has come under pressure from hardline Buddhists after the US embassy used the term "Rohingya" to refer to the persecuted Muslim minority.