PARIS, July 8 (Reuters) - French President Nicolas Sarkozy disappointed thousands of prisoners on Sunday by refusing to sanction a traditional Bastille Day pardon.

Sarkozy's two predecessors, Jacques Chirac and Francois Mitterrand, regularly ordered the mass release of prisoners to coincide with the July 14 national holiday, using the pardon as a way of relieving heavy overcrowding in France's jails.

Last July alone Chirac freed some 3,500 inmates and legal groups were hoping the newly installed Sarkozy would follow suit this month to take some of the pressure off the prison network.

But the president, who won election in May and has a reputation as a law and order hardliner, announced on Sunday he would end the practice.

"There will be no mass pardon," Sarkozy said in an interview in Le Journal du Dimanche newspaper. "The proposal put to me was for the release of 3,000 prisoners. Since when has the right to a pardon been used as a way of managing prisons?"

France's 188 prisons house some 61,000 prisoners but were built to take only 50,000 inmates, official data show.

The opposition Socialist party supported Sarkozy's decision but said the government needed to act urgently to improve prison conditions and find alternatives to custodian sentences.

"If this renunciation of collective clemency is not accompanied by (such) measures ... then there are tensions which won't take long to emerge. They're already there," Socialist party leader Francois Hollande told Radio J on Sunday.

Prison officers said they feared there could now be a backlash from inmates who had come to expect the pardon.

"The reduction of sentences are much anticipated and have a real psychological impact at the heart of the prison population," the SNP-FO prison staff union said in a statement.

Rights groups, prison guards and judges are concerned prison crowding will get significantly worse in the months ahead thanks to a law presented to parliament last week that will force judges to impose minimum sentences for repeat offenders.

Sarkozy said on Sunday he would continue offering individual pardons on a case-by-case basis, but again indicated that he would not follow the example of Chirac, who last year granted an amnesty to a political ally.

Chirac was accused of acting "like the prince of a banana republic" after he cleared his friend, the former athlete Guy Drut, of corruption charges.

Sarkozy said he would give pardons for "humanitarian reasons" or in exceptional circumstances: "(If) someone jumps into the Seine and saves three children who are drowning, (if) he has criminal record, then an individual pardon could work."

The traditional mass pardon of prisoners commemorated the storming of the Bastille in 1789, when French revolutionaries freed the seven inmates they found locked inside the jail.

Additional reporting by Laure Bretton