Pakistan starts work on Iranian gas pipeline opposed by U.S

DUBAI (Reuters) - The presidents of Iran and Pakistan marked the start of Pakistani construction on a much-delayed gas pipeline on Monday, Iranian media reported, despite U.S. pressure on Islamabad to back out of the project.

Dubbed the "peace pipeline", the $7 billion project has faced repeated delays since it was conceived in the 1990s to connect Iran's giant South Pars gas field to India via Pakistan.

The United States has steadfastly opposed Pakistani and Indian involvement, saying the project could violate sanctions imposed on Iran over nuclear activities that Washington suspects are aimed at developing a weapons capability. Iran denies this.

India quit the project in 2009, citing costs and security issues, a year after it signed a nuclear deal with Washington.

Pakistan has pursued the pipeline scheme as a way of alleviating severe energy shortages that have sparked demonstrations and battered a weak government. At the same time, it badly needs the billions of dollars it receives in U.S. aid.

"Pipeline construction to transfer gas from the Islamic Republic to Pakistan ... started at the zero point of the border in the presence of President Mahmoud Ahmadinejad and Pakistani President Asef Ali Zardari," Iran's state news agency IRNA reported.

Iranian state television showed footage of Ahmadinejad and Zardari shaking hands and offering prayers after unveiling a plaque to mark Pakistan's involvement.

Iran has completed 900 km (560 miles) of pipeline on its side of the border and Iranian contractors will also construct the pipeline in Pakistan, Iran's national broadcasting network IRIB reported.

Tehran has agreed to lend Islamabad $500 million, or a third of the estimated $1.5 billion cost of the 750 km Pakistani section of the pipeline, Fars news agency reported.

The two sides hope the pipeline will be complete in time to start delivery of 21.5 million cubic metres of gas per day to Pakistan by December 2014. (Reporting by Marcus George; Editing by Alistair Lyon)