* State-run power producer told to keep supplying distributors
* Next hearing in the case on March 26
* Power generator warned distributors to pay up or face Feb. 11 cut-off
* Distributors complain regulator has failed to increase tariffs (Adds details, context)
NEW DELHI, Feb 7 (Reuters) - India's Supreme Court on Friday ordered state-run power producer NTPC Ltd to continue supplying power to distribution companies in the capital, New Delhi, until March 26, in a move that averts a blackout next week.
The decision is the latest development in an escalating row between the newly elected Aam Aadmi Party, which leads the government in Delhi, and distributors that have been warned to pay power providers or risk being cut off.
"Finally, the consumer would be the sufferer," said Justice S.S. Nijjar, one of the two judges on the panel issuing Friday's order, which asked NTPC to maintain supply until the next hearing in the case, set for March 26. "Think about them."
Many Indians see cheap or free power as a right, not a privilege, and politicians are often tempted to give in to this view, particularly as national elections approach by May.
But by keeping tariffs low, politicians have strained the finances of distribution companies, which often resort to crippling power cuts. Such blackouts in turn hobble the competitiveness of Asia's third-largest economy.
BSES Yamuna Power, which sells electricity in the central and eastern parts of New Delhi, home to about 16 million people, had faced a threat from NTPC that supply would be cut off from Feb. 11 if it did not pay its bills.
The firm, an arm of billionaire Anil Ambani's Reliance Infrastructure Ltd, runs two electricity distribution companies in the capital in a joint venture with the state government. It had said lower tariffs and a revenue shortfall meant it could not pay.
The judges also ordered BSES to pay 500 million rupees ($8 million) to NTPC as part of its outstanding dues. Together, the two distribution companies now owe NTPC 6.92 billion rupees ($110.68 million).
The Delhi government had asked the region's electricity regulator to revoke distributors' licences if they halted supply, drawing criticism from the firms who say the regulator failed to ensure power tariffs keep pace with rising costs.
India's power sector has been marred by years of rising debts, fuel supply shortages, corruption, red tape and tariffs kept artificially low by populist politics.
In 2012 the federal government announced a $32-billion bailout package to fix the financial health of state-run power distributors. ($1=62.5225 Indian rupees)
(Reporting by Suchitra Mohanty,; Writing by Devidutta Tripathy,; Editing by Angus MacSwan)