* Proposed law would have re-instated jail terms for defamation
* Ukrainian press had said move would introduce censorship * Opposition says bill may resurface after Oct. 28 poll
KIEV, Oct 2 (Reuters) - The Ukrainian parliament on Tuesday scrapped a draft bill which would have made defamation a crime punishable by jail, a move the opposition and media had feared was a step towards censorship before a parliamentary election later this month.
Deputies from President Viktor Yanukovich's Party of the Regions and their allies, who hold the majority in parliament. rushed through the draft law's first reading on Sept. 18. It would have allowed prison terms of up to five years for offenders.
However, last week Yanukovich criticised the timing of the proposal on the sidelines of the U.N. General Assembly, prompting the Regions deputy who introduced the law to remove it from parliamentary discussion.
Yanukovich spoke against it after protests by Ukrainian journalists and also after the opposition turned it into an election issue.
The parliament voted on Tuesday to remove the bill from its agenda, although the opposition voiced concerns that it may resurface later.
"They will do everything to come back to this after the election of a new parliament," said Arseny Yatseniuk, the leader of the United Opposition bloc which includes the Batkivshchyna (Fatherland) party of jailed former prime minister Yulia Tymoshenko.
The scrapped libel law would have applied to anyone, including journalists, who spread "deliberately untrustworthy information" which denigrated a person, hurt their honour and dignity or undermined their business reputation.
The proposal to return the legislation to the books 11 years after it was removed led to an outcry from the opposition and independent media which says it is under increased pressure from the authorities before the Oct. 28 election.
Political analysts say the Regions and their allies are likely to retain a majority in the 450-seat chamber.
Officials from the European Union and the United States have criticised what they see as biased media coverage of the political scene and the imprisonment of Tymoshenko, Yanukovich's main political opponent, on abuse-of-office charges.
(Reporting by Olzhas Auyezov; Editing by Angus MacSwan)
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Keywords: UKRAINE ELECTION/ DEFAMATION/