* Cash offered to set up search and rescue zone
* Libyan coastguard pushing into international waters
* Activists say migrants trapped in circle of abuse
* Coastguard and charity boats have repeatedly clashed
By Steve Scherer and Aidan Lewis
ROME/TRIPOLI, Dec 15 (Reuters) - Italy wants Libya's coastguard to take responsibility within three years for intercepting migrants across about a tenth of the Mediterranean even as Libyan crews struggle to patrol their own coast and are accused of making deadly mistakes at sea.
Six years after the revolution that overthrew Muammar Gaddafi, Libya is split between rival governments in the east and west while ports and beaches are largely in the hands of armed groups.
Migrant smuggling has flourished, with more than 600,000 making the perilous journey across the central Mediterranean in four years. Migrants transiting through Libya often endure appalling conditions, including rape, torture and forced labour.
The Italian plan, outlined in a slide presentation seen by Reuters, shows that Italy and the European Union are focusing on rebuilding Libya's navy and coastguard so they can stop boats. But aid groups say the Libyans are poorly trained and accuse them of mishandling a rescue last month in which some 50 people are thought to have died.
The Libyans return all migrants, including refugees, to Libya even though the situation on the ground there is far from resolved. Italy has been coordinating rescues off the Libyan coast since 2013.
The 30 slides show spending of 44 million euros ($52 million) to expand Libya's capacity by 2020, equipping the coastguard and enabling it to establish its own rescue coordination centre as well as a vast maritime search-and-rescue region. It also foresees a pilot project for monitoring Libya's southern border. The project draws on European Union and Italian funds, and needs EU approval.
The plan was presented by the Italian coastguard at a conference hosted by the EU's anti-trafficking mission, Sophia, in Rome last month. Representatives from the EU, non-governmental groups and various Mediterranean navies and coastguards attended the closed-door presentation, said a source who was present.
Libya's coastguard has already been pushing further into international waters, often firing warning shots or speeding close to charity boats. Over the summer, three charities abandoned rescue operations in part because of fears of the increasing Libyan sea presence.
Arrivals to Italy have fallen by two-thirds since July from the same period last year after officials working for the U.N.-backed government in Tripoli, Italy's partner, persuaded human smugglers in the city of Sabratha to stop boats leaving.
The Libyan coastguard also increased the rate of its interceptions, turning back about 20,000 this year, though it still only stops a portion of the boats.
The crisis remains a major issue in Italy. State shelters for asylum seekers are nearly full, and with elections looming politicians across the spectrum insist the flows from North Africa be stopped, which the new scheme is likely to address.
Italy's coastguard did not reply to a request for comment. The prime minister's office referred questions to the interior ministry, which is spearheading the effort to fight people smuggling in Libya and also had no comment.
"Each nation has the right to declare its own search-and-rescue zone, and to carry out search-and-rescue operations," a Defence Ministry spokesman said, citing international law.
Ayoub Qassem, a Libyan coastguard spokesman, said he did not have details of the plan, but both sides recognised the need to cooperate in tackling irregular migration.
"Recently the Italian side has been eager to cooperate with Libya because it's more effective than working without Libya -- that's natural," he said.
Italy has supplied Libya with four refurbished vessels so far, and six more have been promised, while the EU has trained about 220 Libyan coastguards.
But rights groups and aid workers say partnering with Libya's "unprofessional" coastguard risks exposing migrants to drowning during rescues or to further rights abuses if sent back to detention centres inside Libya.
"From the testimony we hear from the migrants, we know that people intercepted at sea have then re-entered the circle of violence and imprisonment and abuse that they were fleeing," said Nicola Stalla, search-and-rescue chief for SOS Mediterranee, one of the charities still operating off Libya.
Activists also point to incidents such as one on Nov. 6, when crew members of the German humanitarian ship Sea Watch 3 witnessed a Libyan naval vessel draw alongside an inflatable migrant boat.
When people fell into the water, Sea Watch used small rubber speedboats to pull people from the water while the Libyans looked on. Some migrants who climbed on board the Libyan vessel were whipped with ropes, and the Libyan boat sped off with a man still dangling in the water, according to videos shot by Sea Watch and crew member Gennaro Giudetti, who pulled the body of a lifeless 2 1/2-year-old Nigerian boy named Great from the water.
"They watched us and shot videos. They even threw potatoes at us. That's not how you save lives," said Giudetti.
Libya's naval coastguard accused Sea Watch of obstructing the rescue and trying to lure away migrants who had already boarded their ship. Some migrants jumped into the water to try to reach Sea Watch rescuers.
The Libyans said their smaller speedboats, which are mounted on larger patrol vessels and are the safest to use for rescues, were broken.
"We have only one or two of these boats and they do not work, so how we can put them into the water?" Qassem, the coastguard spokesman, told Reuters.
The expansion of Libyan patrols has led to confusion and competition over who should take the lead during rescues. Some charity ships say they have been directed to hold off rescues to allow the Libyans to arrive, putting migrants at risk.
Libya's search-and-rescue region extends 90 miles from shore in some places, and 200 miles in others, Qassem said.
This summer the Libyans notified the International Maritime Organization about plans to take over a large search and rescue region, but withdrew the notification this month, saying it would resubmit a new one soon, an IMO spokeswoman said.
It would be the first time Libya has set up a search-and-rescue region, she said.
The Italian plan proposes helping Libya formally declare such a zone. It would also provide for training, maintenance, new cars, ambulances and buses, communications equipment and clothing. "Full operation capability" is seen by the end of 2020.
(Additional reporting by Ahmed Elumami in Tripoli; editing by Giles Elgood)
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