* Eritrea says AU serving interests of external masters

* Says U.N. sanctions call is irresponsible and illegal

NAIROBI, May 27 (Reuters) - Eritrea has dismissed as "utterly irresponsible" an African Union (AU) request for U.N. sanctions against it for allegedly supplying weapons to insurgents fighting Somalia's new administration.

Somalia's government accuses Eritrea of supporting Islamist militants with planeloads of AK-47 assault rifles, rocket-propelled grenades and other weapons to fuel fighting there.

The AU asked the U.N. to impose sanctions on Eritrea last week.

"Eritrea strongly rejects the irresponsible and illegal statement issued in the name of the African Union," the Horn of Africa country said on the government website, www.shabait.com.

"The illegal and utterly irresponsible statement ... was made on the basis of groundless accusations against Eritrea, without ascertaining the facts, and without even consulting the current chairman of the African Union."

Eritrean President Isaias Afewerki has also denied the allegation, saying U.S. agents were spreading lies to blacken his government's name. Asmara has recalled its ambassador to the AU's headquarters in Addis Ababa.

Western analysts say Ethiopia and Eritrea, still bitter over a border conflict in which 70,000 people were killed, have been fighting a proxy war in Somalia.

"Eritrea is fully aware of where, how and by whom this irresponsible and cynical flouting of the rule of law was conceived in the first place and through which machinations it has passed," it said on the statement posted late on Tuesday.

Somalia's insurgent leader Sheikh Hassan Dahir Aweys told Reuters last week that Eritrea was supporting his group's fight against Somalia's new President Sheikh Sharif Ahmed.

Neighbouring states and Western security forces fear Somalia, which has been mired in civil war for 18 years, could become a haven for militants linked to al Qaeda. (Reporting by Helen Nyambura-Mwaura; Editing by Jon Boyle)

AlertNet news is provided by