Norway ruling party to back Arctic islands drilling
* Seas off Lofoten islands home to world's largest cod stock
* May hold 1.3 billion barrels of oil equivalent
* Controversial issue to be among top debates of election
OSLO, Jan 31 (Reuters) - Norway's ruling Labour Party is set to support oil exploration off a pristine northern archipelago, bringing to a head controversy over drilling in the Arctic in the run up to elections this year.
The seas off the Lofoten islands, perched some 200 km (124 miles) north of the Arctic Circle, have unique cold water reefs and are the spawning grounds of the world's largest cod stock.
The islands are also popular with tourists, attracted to their spectacular nature, with snow-capped mountains plunging into the sea and activities like hiking, fishing and whale watching.
But the seabed may hold some 1.3 billion barrels of oil equivalent, making it a prime area of interest for oil firms, such as Norway's Statoil, which has pushed for the areas to be open to drilling as oil production in the North Sea tapers off.
Oil output in Norway, the world's eighth-biggest exporter with a population of just 5 million, is expected to fall to a 25-year low in 2013.
Two years ago, and after months of dispute, Labour struck a deal with its small coalition partners to forbid oil exploration off the islands until the parliamentary term ends in 2013.
"Given all the knowledge we have of the area, we believe it is a natural step to conduct an impact assessment study," Helga Pedersen, Labour's deputy leader, told Reuters.
State-controlled Statoil is leading the way in exploring the Arctic's oil wealth, but a number of oil companies are also moving into the region in Russia, Canada, Greenland, Alaska and north of Iceland.
Despite some poorer numbers in the past month, Norway's economy remains one of Europe's strongest and it has also wisely put aside $700 billion in oil revenue over the past two decades to provide for a future when its resource wealth runs out.
Much of its current prosperity, however, is based on the oil and gas industry and the government is also under pressure from its conservative opponents in the north of the country of five million.
Environmentalists condemned Labour's move and said they would campaign hard to convince voters not to back parties that support drilling off Lofoten.
They will also lobby members of the Labour Party, which has to formally adopt the new policy at its party conference in April.
"Drilling in Loften ... not only threatens precious natural resources, it also threatens several thousands jobs in the fishing and tourism industries," said Nina Jensen, head of the Norwegian branch of the World Wide Fund for Nature (WWF).
With Labour's new stance, Norway's top three parties all now support drilling around Lofoten but government support is not yet ensured.
Elections are due in September and the winning party may be forced to rely on one of Norway's smaller parties, who generally oppose exploration in the Lofotens, to form a coalition.
The Conservatives, the expected winners in the vote, are seen willing to compromise on the issue if this is needed to win the support of a coalition ally.
Similarly, Labour's two current partners are also opposed to drilling in Lofoten.