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By Nick Tattersall

LAGOS, Aug 28 (Reuters) - Nigerian militants said on Thursday they knew where an Israeli kidnapped by gunmen was being held but withdrew their offer to help rescue him, accusing an Israeli news outlet of branding them as "terrorists".

Four gunmen abducted the 60-year-old project manager, who works for Israeli construction firm Gilmor Engineering Limited, from his home in the southern oil city of Port Harcourt late on Tuesday and fled by stealing his vehicle.

"(The hostage) Mr Advi has been located and seems to be a diabetic patient," the Movement for the Emancipation of the Niger Delta (MEND), the main militant group in Nigeria's oil-producing south, said in an e-mail.

"MEND will only plead with his captors to be humane but will not allow the security operatives to earn their pay by finding him and negotiating his release," it said.

A private security contractor working in the Niger Delta said armed criminals were thought to have invaded the Israeli man's home while he was out attending a diplomatic function and had abducted him when he returned.

MEND, whose campaign of sabotage has included bombing pipelines and kidnapping foreign oil workers, said on Wednesday it was not responsible for the abduction.

It had offered to assist the Israeli government in locating and negotiating the release of the hostage if asked to do so.

"That offer has been suspended until the Israel National News (Arutz Sheva) rescinds its description of MEND as a terrorist group and offers an apology in the next publication," the group said.

Arutz Sheva is a right-wing religious Israeli radio station, which also has a news website.

Insecurity in Nigeria, the world's eighth largest oil exporter, has cut crude output by around a fifth since militants launched their campaign of violence two years ago to press for greater development in their neglected communities.

Criminal gangs in the delta, a vast network of mangroves opening into the Gulf of Guinea, have taken advantage of the breakdown in law and order. Kidnapping for ransom of businessmen, local politicians and foreign workers are common.

More than 200 foreigners have been seized in the delta since early 2006. Almost all have been released unharmed. (Editing by Randy Fabi and Charles Dick)

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