By Leonora Walet

HONG KONG (Reuters) - Chinese solar companies, grappling with huge debts, tepid demand and falling prices, risk losing out on one of the few growth markets, with American solar panel makers seeking to impose stiff duties on Chinese products.

A group of seven solar companies on Wednesday asked the U.S. government to impose anti-dumping duties on Chinese-made solar energy products that they said unfairly undercut prices and destroy thousands of American jobs.

The coalition is being led by the U.S. arm of SolarWorld AG, one of Germany's largest solar product manufacturers.

A steep decline in demand from Europe, which accounts for more than three-fourths of Chinese solar module makers' revenues, following subsidy cuts have made these companies more reliant on the United States, and any escalation in trade tensions could pose a major threat to them.

"If the U.S. takes action, it could have a serious impact on Chinese solar players," said Min Li, head of alternative energy at Yuanta Securities (Hong Kong).

The United States was the fourth-largest market for solar last year behind Germany, Italy and Japan, and Chinese companies such as Suntech Power Holdings, Yingli Green Energy Holdings and Trina Solar eye growing their share of revenue in that market from about 7 percent now.

Solar companies have been betting that the United States could become the world's largest market in the next few years, replacing Germany in the top spot as Berlin trims subsidies there. Most analysts had forecast 2011 U.S. demand of 1.5 GW to 1.6 GW.

The spat over solar panels, which comes even as the Obama administration faces criticism over its financial backing for bankrupt U.S. solar panel maker Solyndra, marks the latest irritant in relations between the world's two top economies.

The controversy comes at a sensitive time in U.S.-Chinese trade relations. Earlier on Wednesday, China's Commerce Ministry urged the United States not to "politicize" economic issues and said that legislation in the U.S. Congress aimed at pressing the Chinese to let the yuan currency rise more quickly violates international trade rules.

Beijing insists it has been fair in its dealings with its trade partners and adheres to its commitments with the World Trade Organization.

"Since China's accession into the WTO, (we have) been in strict compliance with the commitments under the WTO," said Foreign Ministry spokeswoman Jiang Yu.

"Our tariffs have declined significantly and have fallen below the world average. In this regard, we will continue our efforts," said Jiang.

TRADE WAR SEEN UNLIKELY

The US panel manufacturers' petition has caused some concern over an escalation in protectionist measures between the two nations, but industry analysts believe the issue is unlikely to cause any significant rift.

"It is possible that in coming years, there will be more disputes in this area," said Tu Xinquan, associate director of the China Institute for WTO studies at the University of International Business and Economics.

"However, I don't think it will turn into a trade war since both sides are basically dependent on WTO rulings or WTO-consistent trade remedy laws," said Tu.

SolarWorld and its six partners are seeking anti-dumping duties of more than 100 percent to offset below-market Chinese pricing and additional countervailing duties against Chinese subsidies.

They say Chinese producers can aggressively undercut American prices because they receive massive cash grants and other subsidies in China such as tax breaks, discounted raw materials, discounted land, power and water, multibillion-dollar preferential loans, export assistance grants and preferential export insurance.

Solarworld U.S. unit did not rule out the possibility of its parent filing a similar case in Germany.

"The danger of this kind of petition is that other markets may follow suit," said Yuanta's Li.

"If the petition succeeds in getting attention from the U.S. government we may see similar actions from other countries," he said.

(Additional reporting by Sui-Lee Wee and Michael Martina in BEIJING; Editing by Muralikumar Anantharaman)