(adds government warning on rallies, AU reaction)

By Andrew Cawthorne and Wangui Kanina

NAIROBI, Jan 21 (Reuters) - Kenyan President Mwai Kibaki's government warned opposition supporters on Monday it would crack down on planned new protests against his disputed poll win, after it lashed out at critics, including Britain's ambassador.

About 650 people have been killed in violence since Kibaki's re-election last month and 250,000 displaced in a country that is more used to taking refugees from war-torn Sudan and Somalia.

Many of the deaths occured in ethnic clashes involving machete-wielding youths, although police have also shot dead scores of demonstrators in Nairobi and Kisumu in a largely successful bid to crush opposition rallies.

More violence is feared as the opposition has called for further "mass action" on Thursday. Police have banned it.

"Mass action only provides an opportunity for criminals to loot and commit other crimes ... and interfere with the freedoms of other Kenyans who may not wish to participate," State Internal Security Minister George Saitoti said in a statement.

"No freedom is absolute ... A few people will not be allowed to continue causing disruption. All illegal acts will be dealt with accordingly," he added.

Orange Democratic Movement (ODM) leader Raila Odinga returned to the opposition stronghold of Kisumu, for the first time since the disputed Dec 27. election, to a rapturous welcome.

"I'm saddened by the brutal killing of innocent unarmed people demonstrating peacefully," Odinga told Reuters as thousands sang his name and six coffins of people said to be shot by police were laid out in a stadium in the western town.

"Kibaki has proved he has no respect for democracy."

Most foreign and local observers say the poll was flawed, but the government says the opposition pre-planned mob violence against members of Kibaki's Kikuyu tribe.

The crisis has damaged one of the continent's most promising economies, cut off supplies to neighbours, and tainted Kibaki's reputation as the man who democratised Kenya after the 24-year rule of President Daniel arap Moi.

An African Union spokesman, Assane Ba, said in Addis Ababa that the AU "deplored violence in Kenya and appealed to the leadership to restrain their followers to stop any more killings."

In an increasingly militant reaction to criticism from abroad, Foreign Minister Moses Wetangula summoned Britain's High Commissioner Adam Wood to express displeasure.

Officials are particularly irate at comments by Meg Munn, parliamentary undersecretary of state for the Foreign Office, that Britain has "not recognised" Kibaki's government.

"Our elections don't need a stamp of authority from the House of Commons," Wetangula told reporters. British officials confirmed the meeting, but offered no more details.

BOYCOTT

The opposition has called for a boycott of companies owned by Kibaki allies, including Equity Bank, Brookside Dairies and bus companies CityHoppa and Kenya Bus.

"Sabotage of companies (is) illegal," the government said.

The boycott call may be more symbolic than real, however, given that many of Kenya's poor use Equity because of its accessibility and low charges, while commuters in long queues may not want to wait even longer by shunning certain buses.

In the latest violence, at least three people were hacked to death in ethnic fighting in a Nairobi slum on Sunday, while police said four people died in violence in the Rift Valley.

In jittery Kenyan markets, the shilling currency hit a 10-month low against the U.S. dollar on Monday.

In Kisumu, devastated by riots and protests, residents whistled, banged drums and marched to welcome Odinga.

"We have come both to mourn and to happily welcome our president back home," Rose Akinyi, 35, a tailor, while dancing to a dirge to mark a memorial for the killed protestors.

In the latest international mediation attempt, former U.N. secretary-general Kofi Annan was due to fly into Kenya to start talks with both sides on Tuesday. Diplomats hope he can bring Kibaki and Odinga into some sort of power-sharing arrangement, possibly before a fresh vote in the east African nation.

Kenyans are sceptical. "Every time we vote, we bring a bloodbath upon ourselves," said a Nairobi housewife, Joy, who asked not to publish her surname. "Why would we want another?" (Additional reporting by Tim Cocks, Guled Mohamed in Kisumu, Kate Kelland and Katherine Baldwin in London, Tsegaye Tadesse in Addis Ababa)

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