(Adds State Department calling for detainee release, 10th paragraph, additional quotes and context throughout)
By Patricia Zengerle
WASHINGTON, Jan 9 (Reuters) - South Sudan risks losing hundreds of millions of dollars in U.S. aid if its government and rebel leaders do not end a wave of violence in the fledgling democracy formed with Washington's strong support, U.S. officials said on Thursday.
Three weeks of fighting, often along ethnic lines, is ringing alarm bells in Washington over the prospect that the conflict could spiral into full-blown civil war, spawning atrocities or making South Sudan the world's next failed state.
President Barack Obama's administration has pledged $50 million in humanitarian aid for the people of South Sudan.
But government officials and senators said during the hearing that hundreds of millions of dollars in support to the government could be stopped if the violence continues, as Washington pushes South Sudan's government, rebels, neighboring states and other allies to tamp down the conflict.
"I would suspect that at a point if this violence continues that we would suspend that support," Linda Thomas-Greenfield, the assistant Secretary of State for African Affairs, said at a Senate Foreign Relations Committee hearing on the crisis in South Sudan.
Unlike many African nations, South Sudan enjoys the strong interest of a broad range of U.S. lawmakers, who backed the push by largely Christian and African southern Sudan to split from Muslim and Arab-dominated northern Sudan and form the world's youngest state in 2011.
The hearing took place three years to the day after South Sudan became an independent nation.
Washington has spent billions of dollars - congressional aides estimated $600 million per year - to help build the nation, including allowing weapons sales to its government and providing security training for its forces, although those programs have been suspended.
"While Uganda, Ethiopia and Kenya are playing important roles, and obviously South Sudan is very important to China, this is a place where obviously people expect us to make a difference," said Senator Bob Corker, the top Republican on the foreign relations panel, referring to the need to put pressure on both sides of the conflict to reach a ceasefire.
The U.S. State Department called on Thursday for the South Sudanese government to release as quickly as possible 11 prisoners whose detention has become a sticking point in peace negotiations.
The fighting since Dec. 15 has pitted President Salva Kiir's SPLA government forces against rebels loyal to former vice president Riek Machar and brought the oil-exporting nation close to civil war.
At least 1,000 people have been killed, more than 200,000 people have been displaced, and South Sudan's oil exports have plummeted, adding to instability in the entire region.
Congressional aides said the administration was considering a range of options for addressing the crisis - including providing assistance to Ugandan and Kenyan authorities as they support South Sudan's government and helping the United Nations to protect more civilians.
Senators expressed concern about the possibility of human rights violations, genocide or other atrocities, as well as the risks to international security if South Sudan becomes a failed state and potential haven for terrorist groups.
"At the end of the day, there's only one option," said Democratic Senator Robert Menendez, chairman of the Senate Foreign Relations Committee. "... All parties must make serious efforts to seek an inclusive political solution."
The House of Representatives Foreign Affairs Committee has scheduled its own hearing on South Sudan next week.
Underscoring the risks, three U.S. aircraft came under fire on Dec. 21 while trying to evacuate Americans from the spiraling conflict. Thomas-Greenfield said measures were in place for a quick evacuation of remaining U.S. personnel if needed, but that the embassy is staying open.
She said Washington was still investigating who shot at the aircraft.
China, the biggest investor in South Sudan's oil industry, has also called for an immediate ceasefire. Like Washington, it has sent a special envoy to assist in the negotiations.
The two sides in the South Sudanese conflict met face-to-face for the first time on Tuesday in Addis Ababa in a bid to agree on a ceasefire, but faced new delays after Kiir refused a rebel demand to release the 11 detainees, who were arrested last year over an alleged coup plot.
On Wednesday, the government proposed shifting the peace talks to the U.N. compound in Juba, enabling the 11 detainees to attend the negotiations during the day and return to custody in the evening. (Additional reporting by Eric Beech, editing by Andrew Hay and Cynthia Osterman)