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UPDATE 1-India's economic growth hits three-year low in June quarter

* GDP growth in April-June slows to 5.7 pct

* Growth slowest since January-March quarter 2014

* Cash squeeze, GST launch disrupt business activity (Adds detail, comment)

NEW DELHI, Aug 31 (Reuters) - India's economy unexpectedly slowed further to a three-year low in the quarter through June, delivering a blow to Prime Minister Narendra Modi who is facing criticism for disrupting business activity through his shock cash squeeze last year.

Gross domestic product grew 5.7 percent in the latest quarter, its slowest pace since the January-March quarter 2014, according to data released on Thursday.

That compared with a forecast of 6.6 percent growth by economists in a Reuters' poll, and was slower than 6.1 percent growth posted in January-March.

Modi's decision last November to scrap high-value old banknotes, in a bid to flush out the money Indians hide from the taxman, wiped out about 86 percent of currency in circulation virtually overnight.

While his drive to unearth unaccounted wealth did not deliver the desired result, it pounded consumer demand in an economy where most people are paid in, and buy what they need with, cash.

Confusion ahead of the launch of a new goods and services tax (GST) also seems to have dampened economic activity.

"The numbers seem to suggest that the slowdown from last the quarter has intensified due to the combination of long-term slowdown and temporary shock factors like demonetisation and GST," said Abheek Barua, chief economist with HDFC in New Delhi.

"We have to revise our GDP outlook numbers for the full year."

The slowdown was led by the manufacturing sector, which expanded at 1.2 percent from a year earlier compared with a 10.7 percent growth last year.

The financial, insurance, real estate and professional services sectors also slowed to 6.4 percent in the June quarter from 9.4 percent a year ago.

(Reporting by Rajesh Kumar Singh; Editing by Sanjeev Miglani, Robert Birsel)