Brazil says Amazon deforestation slowest in 21 years

* Destruction of Brazilian Amazon slowest since 1988

* Government attributes drop to improved policing

* Environmentalists praise drop, but say more to be done

BRASILIA, Nov 12 (Reuters) - Destruction of the Amazon rain forest in Brazil has fallen to its lowest annual level in 21 years, the government said on Thursday, in a boost to the country's green credentials ahead of a global climate summit.

Deforestation plunged 45 percent in the year to July to 7,008 square kilometers (2,706 square miles), the lowest figure achieved since the National Institute of Space Studies began monitoring destruction of the world's largest forest in 1988.

"We are cleaning up our house," Dilma Rousseff, chief of staff for President Luiz Inacio Lula da Silva, told reporters at a news conference in the capital, Brasilia.

A sharp drop had been widely expected based on preliminary figures from the space agency, which uses satellites to measure deforestation.

Brazil has been under pressure for years to slow the encroachment of loggers and ranchers who are blamed for much of the destruction of the forest, which has lost about 20 percent of its area since the 1970s.

Deforestation in Brazil reached a peak of 27,329 square kilometers (10,500 square miles) in the 2003/2004 period.

The government says improved policing has helped cut deforestation but environmentalists argue that lower commodity prices resulting from the global economic downturn have also been a factor. Deforestation has in the past increased when demand for soybeans, beef and timber have gone up.

Brazil's management of the Amazon, whose destruction accounts for about two thirds of its carbon emissions, is expected to be a key issue at next month's Copenhagen summit, which seeks to frame a new global treaty on climate change.

"Today, we are conscious that the climate question is the most serious we are facing." said Lula, who called the fall in deforestation "extraordinary."

The environment ministry is proposing that roughly half of Brazil's proposed 40 percent carbon emissions cut would come from reducing deforestation. The government is aiming for an 80 percent reduction in the deforestation rate by 2020, based on the annual average of 19,500 square kilometers (7,528 square miles) between 1996 and 2005.

Environmental group Greenpeace said in a statement that while the sharp drop was important, there was still too much deforestation and the government's target was not ambitious enough.

"The president ... will be happy if in 11 years' time the Amazon forest is being destroyed at a rate of a little less than three cities the size of Sao Paulo a year," it said, referring to South America's largest city. (Writing by Stuart Grudgings; editing by Todd Benson and Todd Eastham)