* Opposition stopped attending in protest at arrests
* Talks spokesman says channels of communication open
* Talks aimed at agreeing reforms after mass protests (Updates with spokesman, background)
MANAMA, Jan 9 (Reuters) - The Bahraini government has suspended reconciliation talks with opposition groups aimed at ending nearly three years of political deadlock in the U.S.-allied country, raising the prospect of further instability.
The spokesman for the talks stressed that despite the breakdown, the channels for communication remained open, but with the opposition having boycotted the talks for months, over the arrest of some of their leaders, prospects looked bleak.
The talks began in February last year, as part of a new drive for progress after mass protests led by majority Shi'ite Muslims erupted in early 2011 demanding reforms and a bigger share of power in the Sunni-led government of the kingdom.
But the discussions made little progress, with both sides unable to compromise on the opposition's main demands for a constitutional monarchy and a government formed from within an elected parliament.
The unrest has turned the small state, home to the U.S. Fifth Fleet, into a frontline in a region-wide tussle for influence between Shi'ite Muslim Iran and Sunni Arab states such as Saudi Arabia.
State news agency BNA said late on Wednesday that government representatives made the decision to suspend the talks after opposition members failed to show up for a meeting in Manama.
They stopped attending the meetings as long ago as September in protest at the arrest of Khalil al-Marzouq, a leader of the opposition group Al-Wefaq, on charges of inciting terrorism.
"The participants in the National Dialogue have today decided to suspend sessions. They have announced their decision after attending the 28th session," the news agency, BNA, said.
The agency said government representatives and members of parliament blamed "five political associations" - a reference to the opposition groups - for the breakdown in dialogue.
Isa Abdul Rahman, spokesman for the dialogue talks, said the decision did not mean an end to the dialogue.
"The announcement stressed that the channels of communication remain open, but nothing can be finalised (in any bilateral talks) except by the reconvening of the dialogue," Abdul Rahman told Reuters.
Marzouq, who has since been released on bail, blamed the government for the collapse and said the opposition was still committed to dialogue.
"The authority had not been looking for partners ... because it does not believe in partnership," Marzouq said in comments carried by Wefaq's website.
Representatives of the government and parliament said they would continue "consultations and national work towards consolidating political gains", BNA said without elaborating.
Bahraini Shi'ites complain of discrimination by the country's ruling Sunni minority in jobs, housing and education - a charge the government denies.
A previous attempt at reconciliation in 2011 collapsed when the opposition walked away from the talks, saying they were not carried out fairly.
Opposition members complained then that Wefaq was given only one out of 60 seats in the dialogue, the same number as very small pro-government parties. (Reporting by Sami Aboudi; Editing by Alison Williams)
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