RAIPUR, India, April 1 (Reuters) - Maoist rebels killed two farmers for allowing their land to be acquired for a planned steel plant, Indian police said on Sunday, as the country debates industrial projects being set up on farmland.

The killings took place in a village in Dantewada district in Chhattisgarh state in central India, which is the worst hit of at least 13 out of 29 states affected by Maoist violence.

"Over 40 armed Maoists raided Bhansi village and killed two tribal villagers by slitting their throats for agreeing to surrender their land for Essar Steel's planned plant," senior police officer O.P. Pal told Reuters by telephone.

Bhansi village is about 400 km (250 miles) south of the Chhattisgarh's capital, Raipur.

Police said Maoists had warned residents in the area not to hand over their land in return for financial compensation for the steel plant of Essar Steel Ltd. <ESRG.BO>, which had signed a deal with mineral-rich Chhattisgarh in 2005 for investing 70 billion rupees ($1.6 billion) in the project in Dantewada.

The acquisition of land by companies and state governments for industrial units and Special Economic Zones (SEZs) has become a hot issue in India.

Fourteen villagers protesting a planned chemical hub were killed in a clash with police last month in the eastern state of West Bengal. The local communist government later backtracked over placing it on farmland after the violence.

The Maoists, who say they fight for India's poor peasants and landless labourers, organised a 24-hour strike across eastern India and Chhattisgarh to protest the killings, and a government policy that allows the setting up of SEZs on fertile agricultural land.

Tens of thousands of people have been killed in Maoist violence in the past three decades.

In response to farmer protests earlier this year, the federal government put all proposed SEZs on hold.

An Essar Steel official said the land acquisition process for the plant in Dantewada was in the final stage, and that the state government had assured the company about 600 hectares (1,480 acres) of government and private land by June this year.

Farmers have had their land taken to make way for factories for decades in India, but in recent months isolated protests have joined into a national movement against the accelerating industrialisation of the economy. ($1=43 rupees)

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