* Outrage grows over withdrawal of Kashmir's special status
* Region remains under communications blackout
* UN chief calls for restraint
* Pakistan steps up diplomatic pressure, rules out conflict (Adds Modi address to nation)
ISLAMABAD/SRINAGAR, India, Aug 8 (Reuters) - Pakistan halted its main train service to India on Thursday and banned Indian films as it exerted diplomatic pressure on New Delhi for revoking the special status of Kashmir, the region at the heart of 70 years of hostility between them.
Seeking to tighten its grip over the contested region, Prime Minister Narendra Modi's government this week withdrew Muslim-majority Jammu and Kashmir's right to frame its own laws and allowed people from outside the state to buy property there.
The federal government also broke up the state into two federal territories to allow it greater control, a move that regional leaders said was a further humiliation.
Kashmir remained under a communications blackout on Thursday with mobile networks and internet services suspended and at least 300 politicians and separatists in detention to prevent protests, according to police, media and political leaders.
Kashmir's leaders have warned of a backlash and Pakistan, which also lays claims to the Himalayan territory, vowed to fight for the rights of people living there.
"Pakistan is looking at political, diplomatic and legal options," Foreign Minister Shah Mehmood Qureshi told a news conference in Islamabad, though he ruled out a new military conflict.
"We're not looking at the military option. We're not," he said. The nuclear rivals have twice gone to war over Kashmir and fought an aerial duel in February.
United Nations Secretary-General Antonio Guterres called on the two countries to refrain from any steps that could affect the special status of the disputed regions of Kashmir and Jammu.
Guterres was "concerned over reports of restrictions on Indian-side of Kashmir," and warned that such actions could "exacerbate the human rights situation in region," Guterres' spokesman Stéphane Dujarric said in a statement.
India said changing the status of Kashmir was an internal affair and aimed at developing the region where it has battled an insurgency for 30 years.
Modi addressed the nation on Thursday, saying the government will take steps to create more economic opportunities for the people of Kashmir. Trying to allay concerns the region would be governed from Delhi, he said elections to the state legislature would be held soon.
"The people of Jammu and Kashmir will be able to choose their leaders," Modi said.
But Kashmiris see Modi's decision to withdraw the special status as a breach of trust and fear it will lead to an influx of people from the rest of India, eventually altering the demographics of the state. About two-thirds of the population of Jammu and Kashmir is Muslim, while India is majority Hindu.
On Thursday, thousands of paramilitary police remained deployed in Kashmir's largest city, Srinagar, schools shut and roads and neighbourhoods barricaded to stop public demonstrations against the sweeping changes.
Security will be even tighter for Friday prayers, police said.
There have been sporadic protests, two police officers said, speaking on condition of anonymity. At least 13 people have been injured by stone-throwing across the city since Tuesday night, one officer said.
Srinagar's old quarter was locked down, with policemen in riot gear deployed every few metres, and barbed-wire checkpoints every few hundred metres.
Near the Jama Masjid, which has long been the centre of protests in Srinagar, bricks and rocks from recent stone-pelting incidents were strewn in at least three locations.
A witness said that there had also been stone-throwing in the Bemina area in northwest Srinagar, where some roads had been blocked by poles and boulders.
"There is a lot of anger among the people," one of the police officials said.
Tens of thousands of people have died in the armed revolt to secede from India that erupted in 1989 and has ebbed and flowed since then.
While it kept the lid on Kashmir, New Delhi struck a conciliatory tone toward Pakistan, urging it to reconsider its decision to downgrade diplomatic ties.
"The Government of India regrets the steps announced by Pakistan yesterday and would urge that country to review them so that normal channels for diplomatic communications are preserved," the foreign ministry said.
Islamabad said on Wednesday it would expel India's ambassador to Pakistan and its envoy, who was to start his assignment soon, would not move to New Delhi.
Pakistan also said it would ban the screening of Indian movies in the country's cinemas. The two nations have previously banned each other's artistic content, or artists, when tensions have escalated.
India's Bollywood industry has banned Pakistani artists since 2016, when militants attacked an army camp in Kashmir and killed several soldiers. India blames Pakistan-backed militant groups for the attack, an allegation that Pakistan has denied.
"No Bollywood movie has released in Pakistan this year, and I don't think producers are even looking at it as a market," film distributor and industry tracker Girish Johar said.
(Additional reporting by Devjyot Ghoshal in SRINAGAR; Writing by Sanjeev Miglani; Editing by Catherine Evans)