UPDATE 2-Western export insurers quit Turkish Ilisu dam

* Austrian, German and Swiss export credit insurers pull out

* Failure to meet World Bank standards cited

* Turkey says "determined" to go ahead with project

(Adds Turkey's reaction)

VIENNA, July 7 (Reuters) - Western export credit insurers quit Turkey's planned Ilisu dam on the Tigris River on Tuesday because it failed World Bank environmental and heritage standards, but Ankara said the 1.2 billion euro ($1.68 billion) project would go ahead.

The dam is due to provide 3.8 billion kilowatt hours of electricity a year and help wean Turkey off reliance on energy imports. But it will also swallow up more than 80 villages and hamlets by the time of its planned completion in 2013.

Work on the project was halted in December when the three insurers -- Euler Hermes Kreditversicherung of Germany, Austria's Oesterreichische Kontrollbank and Swiss Schweizerische Exportrisikoversicherung -- ordered suppliers to stop working on the dam for 180 days.

"The agreed contractual conditions regarding the environment, cultural heritage and relocation could not be fulfilled," the insurers, which were providing credit guarantees for the German, Austrian and Swiss suppliers, said in a joint statement.

One of the suppliers, Austrian machinery maker Andritz (ANDR.VI), expressed regret and said it was waiting for a Turkish government decision on the dam before deciding whether to stay in the project.

European Union candidate Turkey said on Tuesday it was determined to go ahead with the dam project in its impoverished southeast, a region long scarred by unemployment and Kurdish separatist violence.

"Turkey sees Ilisu dam project as a key plank of the southeastern Anatolia project and a driving force of the social development and we want to emphasise that our determination to build Ilisu dam continues", Turkey's ministry of environment said in a statement.

Turkey had said work on the dam would continue this week, prompting sharp criticism from neighbouring Iraq, which believes the project would worsen an already dire water shortage.

The Tigris and Euphrates rivers both rise in Turkey and flow into Iraq, the latter passing first through Syria.

Turkey began work on the dam in 2006. Environmentalists and historians say almost all of the historic ruins that attract tourists to the southeastern town of Hasankeyf, on the Tigris, would be buried if the project goes forward.

Hasankeyf was used by the Romans as a fortress to ward off the Persians. The town was later destroyed by Mongols and rebuilt in the 11th century by Selcuk Turks. The plans allow for the ruins to be moved to an area nearby. (Additional reporting by Selcuk Gokoluk in Ankara) (Reporting by Sylvia Westall; Editing by Jon Boyle)