UPDATE 3-Russia says US aid mission sought to sway elections
* Washington has denied trying to influence polls
* Rights groups see move as part of wider Putin crackdown
* Moscow says its civil society needs no "external guidance"
By Steve Gutterman and Nastassia Astrasheuskaya
MOSCOW, Sept 19 (Reuters) - Moscow accused the United States on Wednesday of using its aid mission in Russia to meddle in politics and influence elections, a charge likely to push relations between the former Cold War foes to a new low after Vladimir Putin's return to the Kremlin.
The Russian Foreign Ministry issued a blunt statement explaining Moscow's decision, announced by Washington on Tuesday, to give the U.S. Agency for International Development (USAID) until Oct. 1 to cease operations in Russia.
Kremlin critics said the move was intended to cut funding to organisations Putin sees as a threat following his return as president in May after four years as prime minister, and called it part of a crackdown on dissent.
"It's about attempts to influence political processes, including elections of various types, and institutions of civil society though the distribution of grants," Foreign Ministry spokesman Alexander Lukashevich said in statement.
He said Moscow had also been worried about USAID's work in regions including the North Caucasus, where Russia faces an Islamist insurgency that activists say is stoked by rights abuses and tough police tactics.
USAID has worked for two decades in Russia since the collapse of the Soviet Union, spending more than $2.6 billion on programmes intended to combat disease, protect the environment, strengthen civil society and modernise the economy.
But persistent tension between Moscow and Washington over U.S. democracy-building abroad has been aggravated by peaceful political change in ex-Soviet republics, upheavals in the Arab world and Putin's long rule.
Putin, a former KGB spy in power since 2000, has repeatedly warned the West and particularly the United States not to meddle in Russian politics. He once likened opponents to "jackals" skulking around embassies and living on foreign handouts.
"Putin feels and has always felt that a free, independent civil society is his enemy, a foe of imitation democracy," said Oleg Orlov, chairman of the human rights group Memorial, which gets a little less than half its funding from USAID.
"Putin takes us as a threat to the system he has built in the country," he told Reuters.
The United States has criticised Russia's elections and its record on upholding the rule of law, but has dismissed accusations that its funding of human rights and pro-democracy organisations is intended to influence domestic politics.
The move against USAID increases friction in a relationship that improved after President Barack Obama moved to "reset" ties in 2009 but is strained by disputes over issues ranging from the crisis in Syria to U.S. missile defence plans.
It jeopardises funding for Russian groups that rely heavily on the American aid.
"It is part of the policy of control," said Liliya Shibanova, executive director of GOLOS, an election monitoring group that is about 80 percent funded by USAID.
In the eyes of Putin's Kremlin, she said, foreign-funded NGOs "hinder this policy, so they must be strangled".
GOLOS's allegations of campaign and vote violations deepened public suspicions of widespread fraud in a parliamentary election won by Putin's United Russia party in December.
Those suspicions were a major catalyst for protests that have at times drawn tens of thousands of people.
In an interview, Shibanova said that "controlling elections" was a priority for the Kremlin, and that the demand for USAID's closure left it unclear whether GOLOS would be able to monitor local elections to be held in Russia on Oct. 14.
She said GOLOS had been subjected to "targeted campaign" of harassment ranging from her detention at a Moscow airport on the eve of the December vote to tax inspections and poisonously critical coverage on television.
She described the Kremlin's decision on USAID as part of "the whole repressive machine that has been aimed against NGOs since Putin's return" to the presidency.
In July, he signed a law requiring many groups funded from abroad to register as "foreign agents" and has also pushed through laws increasing fines for protesters and for defamation.
The State Department said USAID would promote democracy and civil society in Russia even after its office closed, but it was not clear whether it could continue to fund Russian groups.
Annual aid to Russian groups from USAID is about $50 million, and more than half of its 2012 budget in Russia is spent on human rights and democracy work.
Orlov said that far from acting against Russian interests, Memorial had helped counter Islamist extremism by providing legal aid to people in the North Caucasus who might otherwise decide to "take a gun and fight".
Buoyed by oil and gas revenues, Putin has cultivated the image of a leader who lifted Russia from its knees and has no need for the foreign aid the nation relied on in the 1990s.
Russia is now a donor country and "rejects the status of a recipient of development aid", the Foreign Ministry said, adding that "Russia's civil society has become fully mature and does not need 'external guidance'."
Memorial's Orlov said Russian NGOs need all the help they can get to combat the country's woes.
"I feel like I am trying to spoon up an ocean. While we help one, two or three people, 30 others are being tortured, kidnapped, killed," he said. "Sometimes I lose heart, but then I think, yes, we could stop everything, but there would be no better present to those trying to tear our head off."