* Ex-PM sought to overturn conviction for abuse of office
* Tymoshenko says she is victim of political persecution
* Case has soured Ukraine's relations with the EU and US
By Richard Balmforth and Pavel Polityuk
KIEV, Aug 29 (Reuters) - A Ukrainian high court rejected an appeal on Wednesday by former Prime Minister Yulia Tymoshenko against her conviction for abuse of office, leaving her in jail and Ukraine's relations with the West severely strained.
Tymoshenko's defence lawyer said the ruling by a three-judge panel had been steered by President Viktor Yanukovich for political reasons.
"These findings have no relation to justice," Serhiy Vlasenko told journalists after judge Olexander Yelfimov ruled that lower courts had delivered "correct decisions on the crimes of Tymoshenko."
"This is a decision of Yanukovich to keep Tymoshenko in prison," Vlasenko said.
Western leaders condemned the seven-year prison term meted out to the 51-year-old opposition leader in October as political persecution, and blocked strategic agreements on political association and a free-trade zone with the European Union.
But despite months of chiding by the European Union and the United States, Yanukovich has refused to act to secure her release. No one had expected her to be released on Wednesday.
Yanukovich did not immediately react to Vlasenko's comments, though in tough remarks last Friday he said he would not negotiate integration with the European Union at the price of allowing it to interfere in her case.
In Brussels, the European Union urged Ukraine to reform its judicial system "to redress the effects of selective justice" like that seen in Tymoshenko's case.
"We stress the importance for the Ukrainian authorities to take concrete steps to address the systemic problems of the judiciary," Michael Mann, a spokesman for EU foreign policy chief Catherine Ashton, said.
Tymoshenko, recognisable for her peasant-style hair braid and known for fiery rhetoric, was not in court because of persistent back trouble which has kept her confined to a state-run hospital in eastern Ukraine.
About 300 of her supporters gathered outside the courtroom, chanting slogans such as "Yulia - Freedom!" and "Keep convicts inside and get Yulia out!" They lowered a mock coffin into the ground outside the courtroom to symbolise the death of justice.
The continued incarceration of Tymoshenko - by far the most vibrant opposition figure on Ukraine's political landscape - is certain to figure as a major issue in an Oct. 28 legislative election.
Yanukovich's Party of the Regions goes into that election with the government highly unpopular over reforms that have increased taxes on small businesses and raised retirement ages, and it will have to work hard to retain its majority.
The abuse of office conviction relates to a gas deal that Tymoshenko brokered with Russia in 2009 when she was prime minister. The Yanukovich government says the agreement was reckless and saddled Ukraine with an enormous price for strategic supplies of gas which is taking a toll on the stressed economy.
Tymoshenko has denied betraying the national interest, with her lawyers arguing that the gas negotiation with Russia was a political act which did not amount to a criminal action.
Ukrainian state prosecutors said Tymoshenko's guilt was clearly established at her trial last year.
In Wednesday's judgment, the three-member panel said: "The judges of the court have reached the conclusion that the appeal cannot be satisfied ... The judges believe that the previous courts reached correct decisions on the crimes of Tymoshenko."
Tymoshenko's daughter Yevgenia, who has sought international support for her mother's cause, told journalists: "Today we again received a shameful decision which proves that a dictatorship is establishing itself in Ukraine."
She said the ruling would be the basis for a fresh appeal to the Strasbourg-based European Court of Human Rights (ECHR).
The authorities have ignored Western criticism and piled up fresh charges against Tymoshenko for alleged past misdeeds.
In a separate trial, which has been adjourned several times because of Tymoshenko's ill health, she is accused of embezzlement and tax evasion going back to alleged offences when she was in business in the 1990s.
Lawyers for Tymoshenko pressed her case at the ECHR on Tuesday, arguing that her pre-trial detention had been unlawful and that she had been subjected to degrading treatment in prison.
The former prime minister was a leader of the 2004 Orange Revolution protests against sleaze and cronyism in Ukraine that derailed Yanukovich's first bid for the presidency.
She served two terms as prime minister under President Viktor Yushchenko, but the two fell out and their partnership dissolved into bickering and infighting.
She narrowly lost to Yanukovich in a run-off for the presidency in February 2010 after a bitter campaign.