UPDATE 2-Under pressure, Hungary PM drops contested voting rules
* Registration of domestic voters, new campaign rules unconstitutional
* PM Orban's governing Fidesz abandons plan after ruling
* Court decision second political blow to PM Orban within weeks
By Gergely Szakacs and Krisztina Than
BUDAPEST, Jan 4 (Reuters) - Hungary's ruling Fidesz party abandoned plans to force voters to register for parliamentary elections before the 2014 poll, after the Constitutional Court threw out the measure saying it limited voting rights.
The Constitutional Court ruling and Friday's retreat represent a major blow to conservative Prime Minister Viktor Orban, who swept to power with a two-thirds majority in 2010 parliamentary elections but has since suffered a fall in public support.
But critics have said the measure imposed undue restrictions on a basic tenet of democracy and would discourage large groups of undecided or swing voters from casting their ballot.
The ruling was the second embarrassment in weeks for Orban who has so far held an iron grip on Hungarian politics. Thousands of students took to the streets of Budapest last month to protest against cuts in higher education.
Orban's Fidesz-Christian Democrat alliance approved a new voting system in November in one of the most hotly contested steps of a flurry of reforms that included a new constitution and a swathe of laws that critics say entrench Fidesz's power.
"Mindful of the practice of the European Court of Human Rights, the Constitutional Court has established that for those with Hungarian residency the registration requirement represents an undue restriction on voting rights and is therefore unconstitutional," the court said in a statement.
It added that voter registration for Hungarians outside the borders was justified.
The changes would have required 8 million domestic voters to register in person or online at least two weeks before elections in 2014. Voters currently only have to turn up at polling stations on election day to be identified from an existing state-run database and cast their vote.
The court also said some of the law's provisions on political campaigns imposed "severely disproportionate" restrictions on the freedom of opinion and the media.
Fidesz argued that voter registration was needed because in one of Orban's symbolic measures new voters of Hungarian descent living abroad had been given the right to vote. Fidesz estimated the number of these voters could reach half a million.
Minutes after the court ruling was published, Fidesz parliamentary group leader Antal Rogan told a news conference the party would back away from its plan to avoid a potential constitutional crisis.
"The voice of reason and a sense of political responsibility today requires a different move from us," Rogan said.
A survey by pollster Median conducted in September showed four in five people were opposed to the proposed registration.
Undecided voters make up about half of the electorate according to opinion polls, which showed Fidesz still leading the main opposition Socialists, albeit by a much smaller margin than at the last election in 2010.
"Fidesz wanted to focus on its core voters in the campaign via personal mobilisation and the limitation of the use of the electronic media (radio and tv) ... the voter registration and the campaign ad limitations would have served this purpose," said Peter Kreko, an analyst at think tank Political Capital.
"The campaign will be more intense than they wanted ... and the new election system now will help Fidesz a lot less than they had expected (in 2014)."