* U-turn follows concerns that some biofuels harm climate
* Industry says limit on crop-based fuels is too low
* More votes to follow; divisions still deep
BRUSSELS, July 11 (Reuters) - EU politicians on Thursday backed a new limit on crop-based biofuels, to fix the bloc's policy on transport fuels once thought to protect the climate but now suspected of doing more harm than conventional oil.
The vote in the European Parliament's environment committee will be followed by a plenary vote later this year and will also require endorsement by member states, who are deeply divided on the issue.
Environmental campaigners said Thursday's vote marked progress towards more sustainable biofuels.
Biofuel producers and their suppliers are furious at the policy u-turn, and said the proposed limit of 5.5 percent of total transport fuel use was far too low and would lead to plant closures and job losses.
"Biofuels were part of the solution less than five years ago and are now seen as a problem. The industry will stop investing in advanced biofuels if the EU keeps sending conflicting signals," said Nathalie Lecocq, Secretary General of FEDIOL, the EU vegetable oil industry body which supplies the raw material for biodiesel.
In 2008, an EU target was introduced to get 10 percent of transport fuel from renewable sources by 2020, most of which would come from so-called first generation biofuels made from sugar, cereals and oilseeds.
Since then, a series of studies has underlined the potential environmental damage caused by some biofuels, particularly biodiesel, which accounts for more than two-thirds of the estimated 13 billion euro ($16.71 billion) EU biofuel sector.
Most recently, a study by the Joint Research Centre (JRC) - the Commission's in-house research body - confirmed the findings of earlier EU studies that biodiesel made from crops such as rapeseed does more harm to the climate than conventional diesel.
Emissions from one litre of biodiesel made from imported soy are equivalent to burning up to two litres of diesel from fossil fuel, its data analysis found.
Other biofuels are much less problematic, according to the research.
Fuels made from cereals and sugar crops have much lower carbon emissions than those from vegetable oils such as rapeseed oil, palm oil from Malaysia or soyoil from the Americas.
The reason some first-generation biofuels are considered a problem is that they increase demand for crops, displacing food production into new areas and forcing forest clearance and draining of peatland. They can also add to food price inflation.
The displacement of land is known as ILUC (indirect land-use change) and can result in enough carbon emissions to cancel out any theoretical savings from biofuels.
The Commission proposal includes ILUC factors to estimate the indirect emissions of biofuels made from cereals, sugars and oilseeds, but they carry no legal weight.
The environment committee proposal makes them binding from 2020.
Committee members also voted for extra incentives to promote the use of so-called advanced or second-generation biofuels made from waste or agricultural residues rather than food crops, seen as the most sustainable type of fuel but still at an early stage of commercialisation.
"This vote will pave the way for truly sustainable transport fuels, which actually reduce emissions, as of 2020," Nusa Urbancic, a manager at campaign group T&E. ($1 = 0.7778 euros) (Additional reporting by Charlie Dunmore, editing by Jeff Coelho)