ROME - ITALY'S conservative government backed away on Saturday from a right-wing ally's plan to impose a tax on immigrants seeking residence permits after critics attacked the proposal as racist.

The anti-immigrant Northern League, a junior ally in Italy's government, proposed on Friday a change to the law that would make immigrants pay a 50-euro (S$99) tax to obtain residence permits and provide a 10,000-euro bank guarantee to start a business.

Leftist lawmakers decried the move as discriminatory, and on Saturday a government representative from a lower house panel where the amendment was presented blocked the proposal.

'This is a hateful and deeply wrong measure,' said Marco Minniti, a legislator from the opposition Democratic Party (PD).

'It continues to make integration more difficult, and pushes legal immigrants with a house and a job towards illegal means.'

Immigrants must already wait more than two years and clear various bureaucratic hurdles to obtain an Italian residence permit, said another PD lawmaker Livia Turco.

Immigrants currently pay roughly 72 euros in postage and other fees to obtain or renew the so-called 'permesso di soggiorno' that allows foreigners to live and work in Italy.

Fatima Talhi, a Moroccan immigrant who owns a kebab shop in Turin, denounced the League's proposed changes.

'If they had asked me for a 10,000 euro guarantee I could never havestarted this business,' she told La Stampa daily, adding that she could buy a house in Casablanca for that amount.

Trying to put a lid on the controversy, Prime Minister Silvio Berlusconi said the government had opposed the proposal from the start and denied it had flip-flopped on the issue.

But the League - which banks on anti-immigrant rhetoric to stir up its political base - said it would press ahead with its initiative, even if it was 'amazed' by the reaction of some of its colleagues in the government.

Immigration has been high on the political agenda since Berlusconi came to power last year vowing a crackdown on illegal migrants. But critics accuse his government's policies of stoking fear and fomenting a climate of xenophobia. -- REUTERS