BRASILIA, March 14 (Reuters) - Brazil's government said on Wednesday a plan to tap the Sao Francisco river for drinking and irrigation water was environmentally sound, responding to days of protests against its largest public works project.

The proposal would pump water to residents and farms in Brazil's dry Northeast, where President Luiz Inacio Lula da Silva grew up, by constructing 435 miles (700 km) of concrete canals.

"We are respecting Brazilian environmental law," Environment Minister Marina Silva told protesters, according to a ministry statement.

"Our decision is not in favor of the government or (social) movements. It is an absolutely technical decision," she said.

The ministry already granted an environmental license for the overall design of the project but now needs to authorize its implementation.

The venture will cost up to 6.5 billion reais ($3.1 billion) and construction will span years.

The bidding process for the first of several construction contracts was announced on Tuesday in the government's official gazette.

Hundreds of protesters, including landless rural workers, Indians, and small-scale farmers have camped out in the capital Brasilia to pressure authorities to halt construction.

They say the project costs too much and benefits too few. Environmentalists fear that reducing the river's water level could affect navigability, fish migration and biodiversity.

Already, damming and deforestation has caused considerable silt accumulation along the river's banks.

Critics say the government would also have difficulties ensuring the fair distribution of water.

The prosecutor general asked the Supreme Court in February to suspend the environmental license.

The government says the investment will boost the local economy, cut emigration from the impoverished region and reduce government aid during droughts.

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