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UPDATE 2-Canada gov't rejects effort to ease review of energy projects

Nia Williams and Allison Lampert

(Recasts lead paragraph, adds reaction from main federal opposition leader)

CALGARY, Alberta/MONTREAL, June 12 (Reuters) - The Canadian government has rejected an opposition bid to dilute draft legislation that would impose more stringent reviews on major energy projects, prompting a protest from the nation's main crude-producing province.

The Liberals of Prime Minister Justin Trudeau - pointing to protests by green and aboriginal groups that have stalled the construction of pipelines - say the bill is needed to restore trust in the environmental approval process.

But opponents say the proposed measures will deter investment in an energy industry already struggling with transport constraints and kill new projects.

The issue is set to feature heavily in an October election that polls suggest the opposition Conservatives could win.

Last week a committee in the upper Senate chamber voted to approve the legislation with almost 200 amendments such as removing the power of the federal environment minister to veto a project and altering how the effect of climate change is considered in the regulatory process.

In a motion posted late Tuesday, the government said it would accept 62 amendments. Nearly all the proposals from Conservative senators were rejected.

"The Conservative changes would take us backwards, increase polarization and ironically, make it harder to get good projects built," Environment Minister Catherine McKenna told reporters.

The Liberal-controlled House of Commons will debate the bill on Wednesday before voting on the revisions. The legislation will then return to the Senate.

Canada holds the world's third-largest crude oil reserves but has faced years of regulatory delays in getting new export pipelines built. This has resulted in crude that cannot reach world markets and trading at a discount to global oil benchmarks.

Jason Kenney, the conservative premier of energy-rich Alberta, repeated a threat to launch a constitutional challenge unless the bill is changed.

"We will make one last appeal to the federal government to listen to employers ... to provincial and territorial governments, and to the Senate of Canada in adopting those constructive amendments," he told reporters in Montreal.

Some environmental groups praised the motion for preserving many of the safeguards that Trudeau had promised during the 2015 election campaign that brought him to power.

But Andrew Scheer, leader of the federal Conservatives, said the bill would kill Canada's natural resource sector.

"This is a terrible piece of legislation that needed a complete overhaul if it were in any way to be workable. And so we're very concerned here that they are dismissing these very important amendments," he told reporters. (Additional reporting by Kelsey Johnson and David Ljunggren in Ottawa; Editing by Dan Grebler, Susan Thomas and Cynthia Osterman)