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UPDATE 1-U.S. Senate panel advances crackdown on online sex trafficking

(Adds Senator Wyden puts hold on bill)

WASHINGTON, Nov 8 (Reuters) - A U.S. Senate committee on Wednesday advanced legislation to make it easier to penalize operators of websites that facilitate online sex trafficking, the most concrete action from Congress this year to tighten regulation of internet companies.

The approval came after major U.S. internet companies dropped their opposition to the measure, which amends a decades-old law that is considered a bedrock legal shield for the companies.

In a unanimous voice vote, the Senate Commerce Committee passed a measure that gives states and sex-trafficking victims a means to sue social media networks, advertisers and others that fail to keep exploitative material off their platforms.

The bill rewrites Section 230 of the Communications Decency Act, which generally protects companies from liability for the activities of their users. The changes, which have bipartisan support, will still need to pass the full Senate and the U.S. House of Representatives and be signed by President Donald Trump to become law.

"This is a momentous day in our fight to hold online sex traffickers accountable and help give trafficking survivors the justice they deserve," Republican Senator Rob Portman, who co-authored the bill, known as the Stop Enabling Sex Traffickers Act, said in a statement.

After decades of little oversight from Washington, the internet industry is facing increased scrutiny from lawmakers in both parties over concerns about their size and how their platforms were used by Russia during the 2016 election.

More than 40 senators have co-sponsored the bill, and Trump's daughter, Ivanka Trump, has endorsed it.

Internet companies had long objected to proposals in Congress to rewrite Section 230, arguing the measure had allowed innovation in Silicon Valley to thrive.

But the Internet Association, an industry group whose members include Facebook, Amazon and Alphabet's Google, announced support for the Senate bill last week after a series of changes.

Those edits clarified that criminal charges would be based on violations of federal human trafficking law and that a standard for liability would require a website to knowingly assist in facilitating trafficking.

Democratic Senator Ron Wyden on Wednesday placed a hold on the bill to prevent it from quickly getting a vote in the full Senate, saying it favored big tech companies at the expense of startups and would "stifle innovation."

In a letter on Tuesday, a dozen civil liberties organizations said the bill would threaten free speech online and unevenly harm smaller companies with fewer resources to police their platforms. (Reporting by Dustin Volz; additional reporting by David Shepardson; Editing by Colleen Jenkins)