* Government to review competition in energy sector
* Cameron says he will cut back green regulations
* Coalition partners angered by 'panicky U-turn'
* Rising energy prices dominate political debate
LONDON, Oct 23 (Reuters) - British Prime Minister David Cameron sought to regain the initiative in a political battle over soaring energy prices on Wednesday, promising to improve competition in the sector and cut green taxes that have helped inflate prices.
His announcement caused a rift with his coalition partners, the Liberal Democrats, who dismissed it as a panicky policy that had been "made up on the hoof ... by a party getting cold feet on the environment".
Energy costs have become high-profile political football in Britain since several energy firms unveiled sharp price increases and the opposition Labour Party promised to freeze bills for 20 months if it won the next election in 2015.
How much Britons pay to heat their homes has played into a wider debate about the cost of living, which has risen as inflation and price rises from everything from utility bills to train tickets have outstripped stagnant wages.
"We need to roll back some of the green regulations and charges," Cameron told parliament during an emotionally-charged debate. "We'll be having a proper competition test carried out over the next year to get to the bottom of whether this market can be more competitive."
Even though the economy is improving, Labour, who are just ahead in most polls, says many people are faced with a choice between "eating and heating", and it accusing Cameron's Conservatives of being out of touch.
Cameron described the cost of energy as unacceptable, but said Labour's plans to freeze prizes were an unworkable "con". He too was prepared to intervene in the sector, he added, but in a way that was practical.
A Liberal Democrat source said: "The Conservatives have put no properly worked-up policies in front of us. (We) will not allow the Conservatives to undermine our commitment to the environment, hurt the fuel poor, or destroy our renewable energy industry."
Energy supplier RWE npower raised electricity and gas charges by an average of 10.4 percent on Monday. That followed Centrica's average 9.2 percent rise and an 8.2 percent increase by SSE. Centrica's shares fell 1.2 percent after Cameron spoke.
The other members of the "Big Six" who control 99 percent of the British retail energy market are Scottish Power, a unit of Spain's Iberdrola, EDF Energy and E.ON .
Labour leader Ed Miliband seized the initiative on energy prices last month with a broadside against a market he described as broken with a pledge to freeze bills. Cameron dismissed the idea as unworkable but conceded that Miliband had "struck a chord" at a time of squeezed wages and rising household bills.
He came under further pressure on the issue on Tuesday when former Conservative prime minister John Major suggested Britain should tax energy firms' "excess profits".
Labour energy spokeswoman Caroline Flint said Cameron was "panicking over his failure to address soaring energy bills".
Environmental taxes and social charges contribute nearly 10 percent to domestic energy bills, which average more than 1,200 pounds ($1,900) a year for each household.
The competition review will start in the coming weeks and will look at "prices, profits and barriers to new entrants" to the sector and rule nothing out when it comes to making it more competitive, Cameron's spokesman said.
The energy companies blame the price rises on wholesale prices, the cost of the supply network, and the government's environmental and social programmes.
RWE npower Chief Executive Paul Massara welcomed Cameron's announcement as an "important step in cutting real energy costs". An SSE spokesman said "a balanced audit of competition in the market should be a useful additional step towards building customers' trust".