* Hungarian law on LGBTQ issues triggers conflict with EU
* PM Orban portrays law as fight to protect Christian values
* Rally organisers say law seeks to intimidate LGBTQ people
* U.S., British, German, other embassies back Pride Festival (Adds comments from demonstrators, details)
By Gergely Szakacs
BUDAPEST, July 24 (Reuters) - Thousands of Hungarians joined the annual Budapest Pride march on Saturday to support LGBTQ people and protest against a law that limits teaching about homosexuality and transgender issues in schools.
Hungary's nationalist Prime Minister Viktor Orban, in power since 2010, has introduced social policies that he says aim to safeguard traditional Christian values from Western liberalism, stoking tensions with the European Union.
The European Commission has launched legal action against Orban's government over the new law, which came into force this month, saying it is discriminatory and contravenes European values of tolerance and individual freedom.
Demonstrators at the march through the streets of central Budapest said the legislation was dividing the former Soviet-bloc nation and now a member of the European Union.
"The law is an outrage. We live in the 21st century, when things like that should not be happening. We are no longer in communist times, this is the EU and everyone should be able to live freely," Istvan, 27, said at the march with his boyfriend.
Orban's Fidesz-Christian Democrat government, which faces a tough election next year, says LGBTQ rights and other such social issues are matters for national governments to decide. It says the law aims to protect children not target homosexuals.
Organisers said in a statement the rally would show opposition to "power-hungry politicians" and reject intimidation of LGBTQ people.
"Instead of protecting minorities, the Fidesz-Christian Democrat government is using laws to make members of the LGBTQ community outcasts in their own country," they said.
Orban owes some of his electoral success to a tough line on immigration. As that issue has receded from the political agenda, his focus has shifted to gender and sexuality issues.
Boglarka Balazs, a 25-year-old economist who joined the rally, said the legislation was a campaign tool. "This is nothing more than a diversion that tries to tear the country apart. It is a provocation because of the elections," she said.
A survey last month by the Ipsos polling organisation found that 46% of Hungarians supported same-sex marriage.
More than 40 embassies and foreign cultural institutions in Hungary issued a statement backing the Budapest Pride Festival.
"We encourage steps in every country to ensure the equality and dignity of all human beings irrespective of their sexual orientation or gender identity," wrote the signatories, including the U.S., British and German embassies.
Balint Berta, 29, who works at a clothing retailer, said the legislation was creating artificial tensions in society. "The more politics incites this, society will turn around and people will turn against one another after a while," he said.
(Reporting by Gergely Szakacs; Editing by Gareth Jones and Edmund Blair)
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