Saudi Says New Law to be Used against Terrorists

* Saudi Arabia says draft law to fight terrorism

* Says regional turmoil provides fertile ground for terror threats

* Amnesty International says law will be used to crackdown on dissent

JEDDAH, Saudi Arabia, July 24 (Reuters) - Saudi Arabia's ambassador to Britain has denied charges by Amnesty International that a planned anti-terrorism law will be used to stifle dissent and prevent pro-democracy protests.

"Amnesty International's reference that this planned law will be used against what it describes as opposition rather than terrorists is wrong," said Nawaf bin Abdulaziz in a statement carried on the official SPA news agency.

Amnesty International accused Saudi Arabia on Friday of planning a crackdown on public dissent with new anti-terror legislation that it said was a cover to stop further pro-democracy protests in the absolute monarchy.

Saudi Arabia, a key U.S. ally and the world's leading oil exporter, tolerates no dissent, has no political parties and its parliament is an appointed body with limited powers.

The Draft Penal Law for Terrorism Crimes and Financing Terrorism, published on Amnesty's website, would allow extended detention without charge or trial and impose a minimum 10-year jail sentence on anyone questioning the integrity of the king or crown prince.

It would consider "endangering...national unity" and "harming the reputation of the state or its position" as terrorist crimes and allow suspects to be held incommunicado for an indefinite period, if approved by a special court.

Saudi Arabia boasts of its success in thwarting attacks by al Qaeda, which launched a violent campaign in the kingdom in 2003 that fizzled out in 2006. But Riyadh fears al Qaeda militants could use their base in Yemen to restart operations.

The government also fears that Shi'ite Iran could stir up dissent among minority Shi'ites to destabilise the kingdom, home to Islam's holiest sites.

"There have been many terrorist actions before... which resulted in the death of dozens of people and the spread of terror," the ambassador's statement said.

"Today, the eradicating of these (terror) cells is largely due to the efforts by the Saudi security forces. Despite that, the regional turmoil has provided a fertile ground for new threats," he added.

Activists say thousands of people are held in Saudi prisons without charge or access to lawyers, despite a law that limits detention without trial to six months. The draft law would largely formalise such practices.

The draft published by Amnesty gives wide-ranging powers to the Interior Minister to take action to protect internal security, without requiring judicial authorisation or oversight. (Reporting by Asma Alsharif)