* Sunnis warn of "dictatorship", "political assassination"
* U.S. officials lobby for resolution of candidates ban
HAWIJA, Iraq, Jan 18 (Reuters) - Prominent Sunni leaders brandishing words such as "dictatorship" and "political assassination" to describe Iraq barring more than 500 candidates has set an ominous tone for the country's March election.
Minority Sunnis who held power for nearly a quarter century under former leader Saddam Hussein have been angered by the decision to bar popular Sunni lawmaker Saleh al-Mutlaq and others due to alleged ties to Saddam's outlawed Baath party.
The controversy, which comes as Shi'ite Prime Minister Nuri al-Maliki seeks re-election by claiming credit for security gains, has some politicians talking about an election boycott that could pour new fuel on a Sunni Islamist insurgency just when it has begun to be beaten back.
The recommendation by a panel meant to keep Baathists out of politics and upheld by electoral authorities has threatened to damage fragile bridges across Iraq's sectarian divide as the United States pulls out combat troops after a bloody insurgency.
The list of banned candidates has yet to be made public and still faces a court challenge but Sunnis who lost power in Iraq with Saddam's fall believe it disproportionately targets them.
Some have called on the United States to step in and stop what they see as an attempt by factions in Iraq's ruling Shi'ite majority to tilt the political scales ahead of the March 7 vote.
The election is considered pivotal to Iraq's tenuous security gains after years of bloody sectarian fighting between Sunnis and Shi'ites in which tens of thousands died.
"This is very worrying to us. This is a dictatorship of political powers," said Hussein Ali al-Salih, head of a district council in the heavily Sunni area of Hawija, a dusty and troublesome area near Kirkuk in Iraq's oil-rich north.
"The U.S. has a legal, political and ethical responsibility to step in to correct this political action," said Salih, who also goes by Abu Saddam. Wearing a sheikh's traditional head dress, long dishdasha tunic and suit jacket, Salih chain smoked and warned of a descent back into the violence of the past.
Sunnis largely boycotted elections in 2005, leaving them disenfranchised and resentful of Shi'ite supremacy.
"I believe the timing of this measure is a part of ... a political liquidation or political assassination because it has touched some figures who have been involved in the political process for many years," leading Sunni lawmaker Salam al-Jumaili told Reuters, noting that Iraq's constitution is supposed to protect free political speech.
Sunni leaders have accused the electoral commission, which replaced a "de-Baathification" committee set up after the 2003 U.S. invasion, of targeting politicians who simply talk about Baathists in public.
"There is no doubt that there are political motives behind the decision of this commission," Sunni lawmaker Hussein al Fallouji said. "(To) liquidate political rivals in this way raises fears of a counter reaction that could badly affect the whole political process, or at least undermine it."
Iraqi Foreign Minister Hoshiyar Zebari noted in an interview with al-Arabiya television that Iraq's constitution does not exclude every Baathist from public life.
"It is only those who occupied important titles or those who did damage to people," said Zebari, an ethnic Kurd.
Baathists were purged after the invasion, but the government is supposed to be ushering lower ranking former members back in as part of reconciliation efforts. Many Iraqis joined the Baath party because it was the only way to get a good job.
U.S. officials including Vice President Joe Biden have been lobbying Iraqi officials to overcome the dispute, possibly nervous another slide into broad violence could affect U.S. plans to end combat operations in August ahead of a full U.S. withdrawal by the end of 2011.
Gala Riani, an analyst for IHS Global Insight, said full implementation of the candidate ban "could prove explosive".
"It stands the risk of triggering a militant backlash, or at least a partial boycott by some Sunnis which could damage the legitimacy of the polls," she said in an email. (Additional reporting by Muhanad Mohammed and Waleed Ibrahim; Writing by Jim Loney; Editing by Michael Christie and Louise Ireland)
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