By Diego Ore

LIMA, Oct 31 (Reuters) - Protesters in Peru's southern province of Tacna, who have cut the water supply to neighboring Moquegua, blocked roads on Friday, hoping to make Congress reconsider a law that would redistribute mining royalties.

It was the fourth day of protests in the two provinces, which have been locked in a dispute over how to share millions of dollars in mining taxes paid by Southern Copper Corp <PCU.N>, one of the world's largest mining companies.

Protesters broke an underground water pipe that supplies Ilo, a city in Moquegua, authorities said late on Thursday, while two bridges and parts of the Pan-American highway remained blocked by boulders, sticks and steel bars.

"The struggle of Tacna is far from over. We are calling on everyone to keep fighting," said Hugo Ordonez, Tacna's regional president.

The legislation, which passed on Thursday, overhauls the way royalties are distributed to all provinces in a country with hundreds of mines. The bill was approved by a big majority in Congress. President Alan Garcia is expected to sign the bill into law.

The legislation would assess taxes based on how much mineral wealth a mine produces, rather than on how much dirt a mine moves, as the system does now.

The bill has been most controversial in southern Peru. Under the current system, Moquegua will receive 20 percent of taxes paid by Southern Copper that are distributed to provinces, while 80 percent will go to Tacna. The new law would direct more money to Moquegua.

Southern Copper has the Cuajone mine and Ilo smelter in Moquegua and the Toquepala mine in Tacna. A company official said all operations were normal.

Politicians in both provinces say they need the revenue to pay for basic services like water, electricity and education.

Some 40 percent of Peruvians live in poverty, despite seven years of fast economic growth, and critics say Garcia has not done enough to bring the boom's benefits to the poor. (Writing by Dana Ford)

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