NEW DELHI, April 9 (Reuters) - India's Supreme Court has ordered a state government to stop prosecuting on charges of racial hatred a U.S. scholar whose book was banned after claims that it insulted a revered 17th-century Hindu king.

The 2004 publication of Professor James W. Laine's book "Shivaji: Hindu King in Islamic India" infuriated hardline Hindu groups in the western state of Maharashtra, who claimed Laine was questioning Shivaji's parentage.

The book was banned in the state after dozens of protesters forced their way into the Bhandarkar Oriental Research Institute, where the professor did his research. The mob destroyed rare Tibetan and Sanskrit manuscripts and smashed windows and doors.

The book's publisher, Oxford University Press, withdrew all copies from circulation in India and issued an apology for the upset.

Laine at the time insisted he had not attacked the reputation of Shivaji, a Hindu king who defied Islamic rule almost four centuries ago and who is revered by many present-day Marathas, an affluent Hindu sub-caste.

The court, whose ruling was released on Monday, ordered that the state drop all charges brought by hardliner groups against both the professor and his publisher, saying neither had intentionally tried to cause tensions between communities.

"One cannot rely on strongly worded and isolated passages for proving the charge," the court said in a statement.

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