By Tabassum Zakaria

WASHINGTON (Reuters) - The United States is closely monitoring how the killing of Anwar al-Awlaki, an American-born cleric linked to Al Qaeda in the Arabian Peninsula, will affect the Yemen-based group and its potential for retaliation, top U.S. security officials said on Thursday.

Awlaki, killed last week by a CIA drone strike, was linked to failed plots to blow up a U.S.-bound passenger plane in 2009 and cargo planes headed for the United States in 2010, U.S. officials say.

"Awlaki planned and directed efforts to kill Americans, and he repeatedly called on individuals in the United States and around the globe to commit acts of terror," Matthew Olsen, director of the National Counterterrorism Center, said at a House of Representatives intelligence committee hearing.

"His death has dealt a blow to al Qaeda's most active affiliate," he said.

U.S. security agencies are focused on how the killing will impact AQAP, which officials regard as al Qaeda's most dangerous offshoot.

"We remain concerned about the group's intent to attack Western targets, as well as its propaganda efforts designed to inspire like-minded Western extremists," Olsen said.

Yemen is a key battleground and regional base of operations for AQAP, Olsen said. "Recent gains in Yemen and the governing challenges facing the Yemen government are increasing our concerns about AQAP's capability to conduct additional attacks targeting the homeland and U.S. interests overseas."

AL QAEDA ALLIANCE

U.S. authorities are worried that AQAP will link up with al Shabaab militants in nearby Somalia, who also have al Qaeda ties.

"That remains a significant concern: the potential alliance between Shabaab and AQAP, the regional location, the ability of Shabaab to recruit people from the United States," Olsen said.

FBI Director Robert Mueller said the United States must stay vigilant against the threat posed by the al Qaeda offshoot.

"AQAP has proven its capability to direct attacks into the United States, and a strike against its leadership, even a significant one, does not eliminate the potential for retaliation or other action by AQAP," he said.

Officials also expressed concern about the threat from "homegrown violent extremists" and cyber attacks.

Mueller, asked whether nation states were engaged in cyber espionage against the United States, responded: "Absolutely."

Russia, China, Iran and others "have the capabilities that we are alert to," he said.

The FBI since 2006 has had several dozen cases, investigations, and prosecutions of people related to China who were involved in economic espionage, Mueller said.

Al Qaeda issued its first public encouragement of cyber attacks in a video released on June 3 titled "Thou Art Held Responsible Only for Thyself," Olsen said.

Al Qaeda allies in Pakistan and Afghanistan, such as the Afghan Taliban and the Haqqani network, have recently demonstrated the intent and capability to conduct attacks against Americans and targets in Afghanistan, Olsen said.

"And we are looking closely for any indicators of attack planning in the West," he said.

(Editing by Xavier Briand)