UPDATE 1-Latvian lenders call on ECB to help sort out banking storm

(Adds comments from banking association, Kremlin spokesman)

RIGA, Feb 21 (Reuters) - Latvia's commercial banking association called on the European Central Bank on Wednesday to step in and sort out a crisis at lender ABLV Bank. which has asked for emergency funding after being accused by the U.S. Treasury of money laundering.

Latvia's financial sector has been hit by a storm in recent days with the head of the central bank, who sits on the ECB's rate-setting council, also briefly held by the anti-corruption authority over separate bribery allegations.

"The ECB Supervisory Board must urgently become an active partner in solving and explaining the situation at hand," the Association of Latvian Commercial Banks said in a statement.

Latvia joined the European Union in 2004 and the ECB has been responsible for oversight of its banks since 2014, when the Baltic nation of 2 million joined the euro zone.

The association said the chair of the ECB's Supervisory Board, Daniele Nouy, should come to Latvia and "provide (a) detailed explanation on the preceding supervisory actions by the ECB".

International authorities have long worried about a number of small banks in Latvia who hold funds for foreign clients, mostly in Russia and other former Soviet republics, several of which have been punished for breaches of rules on money-laundering and financing of terrorism, and for sanctions busting.

The call by Latvia's banking association will put pressure on the ECB to explain why it has not acted.

The United States this month said ABLV had made money laundering a "pillar of the bank's business practices" and had helped breach sanctions on North Korea.

ABLV denied any wrongdoing, but the ECB has halted its payments until it comes up with a plan to sort out its finances.

Central bank chief Ilmars Rimsevics has also denied wrongdoing, saying he is a victim of a conspiracy, while the Defence Ministry has said the allegations could be part of a disinformation campaign to influence October's election.

The ministry said recent events were identical to campaigns that preceded French, German and U.S. elections. Those have been blamed on Russia.

Kremlin spokesman Dmitry Peskov said such accusations lacked "a sense of reality".

"You are witnesses yourselves that Russia is accused of a whole range of things, in the most surprising ways, by a variety of capitals and at a variety of levels," Peskov told reporters on Wednesday.

"All this is starting to look like obsessive behaviour."

The U.S. State Department said Washington had "full confidence that the Government of Latvia will take the necessary steps to uphold the integrity of its banking and financial sector."

In a statement late on Tuesday, spokeswoman Heather Nauert said Washington had for many years been working with Latvia "to combat corruption, money laundering and other threats to international security", and would continue to do so. (Reporting by Gederts Gelzis in Riga and Simon Johnson in Stockholm, additional reporting by Polina Ivanova in Moscow; writing by Simon Johnson; Editing by Kevin Liffey)