By Faisal Aziz

KARACHI, April 15 (Reuters) - Tens of thousands of people rallied in Pakistan's biggest city, Karachi, on Sunday to show their opposition to a radical religious school which has begun a Taliban-style anti-vice campaign in the capital, Islamabad.

"The people of Islamabad are insecure and under threat due to the activities of these religious terrorists," said Altaf Hussain, head of the Muttahida Qaumi Movement, addressing the rally by telephone from London.

Hussain, who lives in self-exile in Britain although his party is part of the ruling coalition, said the religious radicals in Islamabad's Lal Masjid, or Red Mosque, and adjoining Jamia Hafsa madrasa were hurting the image of Islam.

"Islam is a religion of peace and it does not need Kalashnikovs and sticks," he told the rally, while a helicopter whirled overhead to provide aerial surveillance and hundreds of police surrounded the venue -- the city's main commercial area.

Moderate Muslims in Pakistan were shocked earlier this month when a cleric announced a religious shariat court had been set up at Lal Masjid to enforce a strict Islamic code of justice, and threatened to retaliate with suicide bombers if the government tried forcibly to suppress the movement.

Lal Masjid's compound has taken on the appearance of a rebel camp in recent weeks, with young men armed with sticks guarding the entrances.

Women, also carrying staves, roam the school's grounds, and two or three men have been seen with guns which the clerics say are properly licensed.

Moderates and liberals, fearful that the ways of the Taliban are creeping into Pakistan's cities, have criticised President Pervez Musharraf for not taking a harder line.

But he appears wary of handing any issue to Islamists in an election year, and the government is trying to negotiate a peaceful settlement with the hardliners in Lal Masjid.

The stand-off began in January, after girls from the Jamia Hafsa madrasa occupied a nearby public library to protest against the demolition of mosques built illegally on city land.

The row escalated last month when, in behaviour reminiscent of Afghanistan under the Taliban, burqa-clad women students from the madrasa raided a house they said was a brothel.

The students have also pressured owners of music and video shops to close down their businesses.

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