BRASILIA, Dec 11 (Reuters) - A Brazilian court has ordered the government to halt a major irrigation project two weeks after a Catholic bishop began a hunger strike against the plan backed by President Luiz Inacio Lula da Silva.

The decision is a setback to the government and may renew investor concerns over legal and regulatory uncertainty surrounding Brazilian infrastructure projects.

A federal judge granted an injunction halting all construction on the Sao Francisco River project, public prosecutors said on Tuesday.

The judge questioned whether the government had proper authority for land and water use. The government said it would appeal.

The project, Brazil's largest public works project, has generated protests for years.

Despite the ruling, Bishop Luiz Cappio said he would continue a hunger strike he began over two weeks ago in the town of Sobradinho to protest the project.

"We received the decision with joy; it is a great sign of hope but we are not there yet," said Cappio, according to a statement by Cimi, the Catholic church's native Indian rights group.

In June, close to 1,500 Indians and landless peasants occupied the main construction site for several days.

The project aims to pump water from the Sao Francisco River through 435 miles (700km) of canals to residents and farms in the arid and poverty-plagued Northeast, where President Luiz Inacio Lula da Silva was born.

The venture will cost up to 6.5 billion reais ($3.7 billion) and construction, which began in March, will take years.

Critics say the project is too expensive and authorities would have difficulty ensuring the fair distribution of water. Environmentalists fear that reducing the river's water level could affect navigability, fish migration and biodiversity.

As a union leader in the 1970s, Lula fought alongside Cappio, a 61-year-old Franciscan monk, against the military dictatorship. Lula will meet with heads of the Catholic Bishops Conference on Wednesday to discuss the hunger strike.

Cappio ended an 11-day hunger strike in 2005 after authorities agreed to a broad public debate on the project. He said on Tuesday he will fast until it is scrapped for good. (Reporting by Julio Villaverde and Raymond Colitt; editing by Eric Walsh)

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