* U.S. to phase out poppy eradication
* Wants to avoid questions over Afghan vote
* Seeks more aid for Pakistan
(Updates with quotes)
By Phil Stewart and Daniel Flynn
TRIESTE, Italy, June 27 (Reuters) - Washington is to dramatically overhaul its Afghan anti-drug strategy, phasing out opium poppy eradication, the U.S. envoy to Pakistan and Afghanistan told allies on Saturday.
Richard Holbrooke, attending a G8 conference on stabilising Afghanistan, also discussed efforts to support its Aug. 20 election. Washington has nearly doubled its troops to combat a growing Taliban insurgency and provide security for the vote.
"The Western policies against the opium crop, the poppy crop, have been a failure. They did not result in any damage to the Taliban, but they put farmers out of work," Holbrooke told Reuters after a series of bilateral meetings in Italy.
"We are not going to support crop eradication. We're going to phase it out," he said. The emphasis would instead be on intercepting drugs and chemicals used to make them, and going after drug lords.
He said some crop eradication may still be allowed, but only in limited areas.
Afghanistan supplies more than 90 percent of the world's heroin.
Despite the millions of dollars spent on counter-narcotics efforts, drug production kept rising dramatically until last year -- U.N. figures indicate Afghanistan's opiate output has risen more than 40-fold since the 2001 U.S.-led invasion.
Italian Foreign Minister Franco Frattini said Holbrooke told delegates the United States planned to cut back funding for eradication while allocating several hundred million dollars to support legal crop cultivation.
The head of the U.N. Office of Drugs and Crime, told Reuters the old U.S. eradication strategy had been "a sad joke".
"Sad because many, many Afghan policemen and soldiers ... have been killed and only about 5,000 hectares were eradicated, about 3 percent of the volume," Antonio Maria Costa said.
Iran declined to attend the event but Antonio Maria Costa, head of the U.N. Office of Drugs and Crime, told Reuters it was strongly committed to a regional effort to tackle trafficking from Afghanistan and had begun joint counter-narcotics operations with Afghan and Pakistani authorities.
"This is very new, it has not happened in the past."
U.S. President Barack Obama has put Afghanistan and Pakistan at the centre of his foreign agenda and launched a new strategy aimed at defeating al Qaeda and stabilising Afghanistan.
The 45 nations and multilateral organisations at the conference issued a statement pledging to look at ways to boost humanitarian aid to Pakistan, where nearly 2 million people have been displaced by fighting.
Holbrooke said allies were not doing enough.
"The U.S. is by far the largest contributor (of aid) to the refugee relief crisis in Pakistan. I don't mind that ... But other countries are not doing the right amount in my view," he said, adding some foreign ministers had told him privately that their countries could do more.
Afghanistan's upcoming vote is seen as a crucial moment for Afghan President Hamid Karzai and for Washington and delegates -- with Iranian post-election turmoil fresh in their minds -- stressed the importance of it being free, fair and credible.
Karzai called on the Taliban and their allies on Saturday to vote rather than attempt to disrupt the polls, a call applauded by Frattini, who said Arab League and Gulf countries were "particularly interested" in encouraging them to vote.
Holbrooke said senior members of the U.S. government were calling the vote "the most important event of the year".
"The fairness of those elections will determine the credibility and legitimacy of the government. We have just seen a spectacularly bad example just next door in Iran," he said.
"And in these situations, governance becomes more difficult. So, at the end of the process, we would like to see a government elected by its people in a way that is credible and viewed as legitimate by the people and the international community."
Afghan Foreign Minister Rangeen Dadfar Spanta told Reuters that Kabul aimed for a free and fair election, but added: "We have to recognise the reality, and the reality of Afghanistan, regarding violence, regarding the weak state."
Holbrooke said it was too soon for Pakistan to declare victory in its Swat valley, where the army has driven back Taliban insurgents.
"The true test is when the refugees go back to Swat. Will they have security? Will they be protected?", he said.
"Will the army be able to keep the Taliban from coming back down over the hills? And the bill for reconstruction in Swat is going to be enormous -- over a billion dollars, maybe over 2 billion." (Additional reporting by Adrian Croft; Writing by Phil Stewart; Editing by Kevin Liffey)