* Libyan armed forces warn shippers off seized ports
* Cyrenaica protesters say will provide tanker security (Adds details from protester letter, more context throughout)
By Ghaith Shennib and Julia Payne
TRIPOLI/LONDON Jan 7 (Reuters) - Libya's standoff with armed protesters blockading its eastern oil terminals escalated on Tuesday after the armed forces warned shippers against loading crude at the seized ports that have been out of government control for months.
Libya's navy said it opened fire on Sunday after a Maltese flagged oil tanker tried to approach Es Sider, one of the eastern ports seized by armed protesters demanding more autonomy from Tripoli's central government
"If a ship docks in one of the closed ports, and it does not leave the port again, then we will destroy it," said Defence Ministry spokesman Said Abdul Razig al-Shbahi. "We have clear instructions. This is sovereignty of the state, even the international law will be in our side."
Negotiations to end the blockade have failed, with eastern federalist protesters threatening to ship oil independently. On Tuesday they said they would guarantee security for vessels docking at ports under their control.
Libya's confrontation over oil is one of challenges facing its fragile government two years after Muammar Gaddafi's fall. Former rebels, militias and tribesman resort to force to make political demands of a state still struggling with a transition to democracy.
Tripoli's major threat remains in the east of the country, where armed protesters linked to the self-proclaimed Cyrenaica regional government have taken over three key ports: Ras Lanuf, Es Sider and Zueitina, which previously accounted for 600,000 bpd in crude exports.
Responding to government warnings, Cyrenaica federalists claimed they would ensure the safety of tankers using the major oil export terminal of Es Sider, according to a letter circulated to oil traders on Tuesday.
The letter, under the header of their self-declared government's newly established Libya Oil and Gas Corp, said that "our security escort will begin upon entry into Libyan territorial waters until exit of Libyan territorial waters."
Officials of the self-declared government were not immediately available for comment.
The risks of an escalation were clear over the weekend when the Libyan navy said it opened fire on a vessel trying to reach Es Sider, before the tanker, Baku, turned back to Malta.
The owner of the tanker said on Tuesday the vessel had been in international waters, and denied it was involved in trying to smuggle crude oil.
The owner, Palmali, said a Libyan naval vessel fired warning shots even after it provided written confirmation to the Libyan National Oil Company (NOC) that it was no longer sailing to Es Sider.
"The Libyan naval vessel continued to circle our vessel threateningly and even fired two shots," it said. "These unfortunate incidents occurred in international waters with manifest and total disrespect by the Libyan authorities for the rule of international order."
Attempts by tribal leaders to mediate over the eastern blockade have failed, forcing the government to warn that public sector salaries are at risk as oil revenues are the main source for the OPEC country's budget.
Negotiations, though, worked elsewhere: Output at Libya's El-Sharara oilfield rose more on Tuesday to over two thirds of full capacity and a pipeline shipping condensate - very light crude - to a western port reopened, marking progress in government efforts to rebuild vital exports.
Talks ended a protest by tribesmen at El Sharara over the weekend with production there climbing to 277,000 bpd on Tuesday and expected to reach full capacity of 340,000 bpd by Wednesday, said a spokesman for the National Oil Corp.
"I think if we keep up at this level we will reach capacity by tomorrow," the spokesman, Mohamed al-Harari, said.
The reopening of the El Sharara field in southern Libya, one of Libya's largest, and of the Wafa pipeline feeding Mellitah port are good news after the eastern protests slashed its national output since July.
El Sharara supplies crude to the western Zawiya export terminal and feeds the 120,000-bpd Zawiya refinery.
Protesters, who had blockaded the El Sharara field for two months, had been calling for the establishment of a local council and the granting of national identity cards for tribesmen from the Tuareg minority.
The pipeline carrying condensates from Wafa oilfield to Mellitah port, jointly operated by Italy's ENI in the west, has also been reopened after protesters briefly blocked the line, with output now at around 30,000 bpd, the NOC said.
But the resumption of the southern El Sharara field was an important win for the government, and could lift Libya's total output to 600,000 barrels a day. A wave of protests and strikes cut the OPEC member country's total output to 250,000 bpd from 1.4 million in the summer. (Writing by Patrick Markey; Editing by Anthony Barker and Giles Elgood)