UPDATE 5-Striking UK state workers challenge coalition
* State workers strike over pensions
* PM Cameron calls the protest "a damp squib"
* Schools close, but few delays at Heathrow airport
BIRMINGHAM, England, Nov 30 (Reuters) - Hundreds of thousands of public sector workers went on strike in Britain on Wednesday to protest over pension reform, in a walkout billed by unions as the biggest in a generation but derided by Prime Minister David Cameron as a "damp squib".
Unions and the government were each quick to claim victory, with labour leaders saying up to two million teachers, nurses, border guards and other workers took part. The government disputed the turnout and played down the strike's impact.
"Our rigorous contingency planning has been working well. Throughout the day it has limited the impact of the strikes significantly and as a result the majority of key public services have remained open," said Cabinet Office Minister Francis Maude.
The government said the unions' turnout claim was "wrong" and the true figure was "significantly less". Cameron described the strike "something of a damp squib".
Unions hit back, reaffirming their two million figure and rejecting again government public sector pension reforms they say will force people to work longer before they can retire and pay more for pensions that will be worth less.
The government, trying to turn around a debt-laden economy teetering on the brink of recession, says reform is needed as people are living longer and public service pensions are unaffordable.
"Government rhetoric today is as predictable as it has been shallow," said Brendan Barber, general secretary of the Trades Union Congress, Britain's main union umbrella group.
"The biggest strike in a generation cannot be dismissed as a damp squib. The (government) claims that all low paid workers will be protected and that the average workers will get better pensions collapse under the slightest scrutiny," he added.
Union anger has been fuelled by new curbs on public sector pay and hundreds of thousands of additional job cuts outlined on Tuesday when the Conservative-led coalition government cut economic growth forecasts and said its tough austerity programme would last until 2017.
The power of Britain's trade unions was curbed by Margaret Thatcher's Conservative government in the 1980s, but the public sector remains one of their strongholds.
Unions are threatening further strikes next year if the dispute is not resolved but analysts say a repeat of the 1979 "Winter of Discontent" that helped Thatcher sweep to power is not on the cards.
"It's very different to the 1970s and 80s. Many of the services that were run by the public sector have been privatised," said Tony Travers, a public finance expert at London School of Economics.
"There is not much evidence that rank and file union members want to go on long-term strikes," he added. "The unions have the power to make a fuss and wound but not kill."
Protests held in towns and cities across Britain mirror strikes in other European countries, where governments are trying to juggle budget deficits with the needs of an ageing population. "Why are the government picking on us in the public sector?" asked Kevin Smith, 54, picketing in pale winter sunshine outside parliament in London, where he works as a security officer.
"We had no rise the last two years, before that we were getting lower than inflation rises. So how long is it going to last?"
Inflation stands at five percent, far outstripping pay rises for public and private sector workers in a squeeze on living standards that is depressing consumer spending.
The government insists its pension reforms would give public sector workers a better pension than most in the private sector. Some private sector workers had little sympathy for strikers.
"Get back to work and get a maths teacher to give you a lesson. There is no money," said Benedict Crabbe, 38, an investment manager from central England in London on business.
Retail centres in London and Manchester enjoyed a boost as parents looking after school-age children did some Christmas shopping.
Fears of long delays at London's main Heathrow airport proved unfounded after the government flew home embassy staff to help out and recruited volunteers from other departments to carry out passport checks.
However, underground rail services were not running in Scotland and there were no trains or buses in Northern Ireland.
A coalition of 30 trade unions are took part in the strike, billed as the biggest walkout since 1979.
Speaking earlier at a rally in the central English city of Birmingham, Barber told Reuters more strikes could follow.
"We will have to see, we want to resolve these negotiations by the end of the year, the government's self-imposed deadline," he said. "I hope it will be possible to resolve it, but if not there is then the prospect of further action including days of this sort."