* Area 7 block falls in disputed Reed Bank area of South China Sea
* Area 7 estimated to hold 165 mln barrels of oil, 3.5 tcf gas
By Erik dela Cruz
MANILA, May 9 (Reuters) - The Philippines on Friday launched a tender for exploration rights in 11 oil and gas blocks, including one in a disputed area of the South China Sea that is likely to fuel further tension with China.
China claims virtually all of the South China Sea and is already involved in a dispute with Manila over a Chinese fishing boat that was seized this week in the Spratly Islands on suspicion its crew was poaching protected turtles species.
Beijing is also in the middle of a stand-off over an oil rig it has moved into waters claimed by Vietnam.
Philippine energy officials sought to downplay the issue of territorial dispute with China in offering to investors the so-called Area 7 in Reed Bank - or Recto Bank as it is known in the Philippines. The Area 7 block, like the rest of the South China Sea, is believed to hold huge oil and gas deposits.
Manila calls the South China Sea the West Philippine Sea.
"The area we are offering in the West Philippine Sea is very near Palawan," Energy Undersecretary Ramon Allan Oca told Reuters, referring to the southwestern Philippine province.
The area is also near the Malampaya offshore natural gas oil field operated by a local unit of Royal Dutch Shell.
"From the point of view of the Philippines, it is not a disputed area," Oca said. "Area 7 is within the Philippines' exclusive economic zone."
China, the Philippines and Vietnam, along with Malaysia, Taiwan and Brunei, all claim parts of the South China Sea.
It was in the Reed Bank where a 2011 confrontation between Chinese navy vessels and a survey ship contracted by London-listed Forum Energy Plc - a unit of Philippine exploration firm Philex Petroleum Corp - led to a halt in oil and gas exploration work in the Sampaguita block.
Area 7, according to the Philippines' Department of Energy (DOE), holds an estimated resource potential of 165 million barrels of oil and about 3.5 trillion cubic feet (tcf) of natural gas. Water depths range between 800 and 1,700 meters.
"As we live within international laws, we seek all diplomatic recourse to assert our claims to the areas in the West Philippine Sea," Energy Secretary Carlos Jericho Petilla told potential investors in a speech at the launch of the 5th Philippine Energy Contracting Round.
The Philippines is also offering 15 blocks for coal exploration, which Petilla said are all within the country's territory.
Most of the oil and gas exploration blocks are located near the Philippines' main island of Luzon, while most of the coal blocks are in southern Philippine provinces. Ten of the 11 oil and gas block on offer are offshore.
Interested investors have until February next year to decide which oil and gas or coal areas they want to bid for.
Petilla said three potential areas for petroleum exploration have been "temporarily" excluded from the list of blocks offered because they fall within areas covered by a peace deal signed in March between the government and the Moro Islamic Liberation Front, the country's largest Muslim rebel group.
Forum Energy holds Service Contract 72 issued by the Philippine government covering the Sampaguita block in the Reed Bank. The block is estimated to have 20 tcf of natural gas, much bigger that Malampaya's estimated reserves of 2.7 tcf.
Forum Energy has yet to resume work in the area after the earlier shipping dispute involving the Chinese navy. (Reporting by Erik dela Cruz; Editing by Tom Hogue)