UPDATE 1-Democratic US senators urge ouster of housing chief

(Adds HUD statement, paragraphs 4-5)

WASHINGTON, March 21 (Reuters) - Two Democratic U.S. senators on Friday called for the resignation of Housing and Urban Development Secretary Alphonso Jackson, saying he is unfit to run the top U.S. housing agency at a time of crisis.

Senators Christopher Dodd of Connecticut and Patty Murray of Washington said allegations of cronyism and improprieties in the awarding of contracts have created a "worsening distraction" for Jackson when he should be dealing with the massive problems in the housing and mortgage markets.

"Unfortunately, the allegations surrounding Secretary Jackson, as well as his rejection of appropriate congressional oversight of his department, undermine his ability to effectively address the current housing crisis," the senators wrote in a letter sent to President George W. Bush on Friday.

"During this critical period, the American people do not need a HUD Secretary that is distracted by the clouds of Justice Department investigation and reports of an impaneled grand jury."

In a statement, HUD spokesman Jereon Brown said Jackson "is focused on helping American homeowners weather this housing crisis."

He said Jackson has worked "tirelessly" to persuade Congress to pass legislation that would modernize the Federal Housing Administration so it can help stabilize the housing market, adding that Congress "has still not acted and the crisis gets worse."

The letter from Dodd, who chairs the powerful Senate Banking Committee and Murray, who chairs the Senate Appropriations transportation subcommittee, follows reports that federal authorities were investigating Jackson's role in the awarding of contracts at housing authorities in Philadelphia, New Orleans and the Virgin Islands.

The senators said Jackson refused to answer their questions regarding his activities in the awarding of three separate contracts and his involvement in a case of alleged retaliation against the Philadelphia Housing Authority.

Jackson came under fire in April 2006 for saying in a speech that he had fired a contractor who had criticized Bush. The HUD inspector general found no undue influence in that case. (Reporting by David Lawder; Editing by Christian Wiessner)