(Reuters) - Vermont's Attorney General appealed on Saturday a federal judge's ruling that had prevented the state from shutting down its only nuclear power plant, escalating a two-year battle over state's rights and atomic energy.

Last month, U.S. District Court Judge J. Garvan Murtha ruled that federal law preempted a state law that would have shut the Vermont Yankee plant in March, at the end of its original 40-year operating license.

Vermont Governor Peter Shumlin says the state secured the right to decide whether it continues running as a condition of operator Entergy Corp's purchase of the plant in 2002.

Although Vermont is the only state in the nation with authority over its nuclear facilities, the debate is being closely followed by other states like New York that want more say over whether to continue running older plants.

"We have strong arguments to make on appeal. The district court's decision improperly limits the State's legitimate role in deciding whether Vermont Yankee should operate in Vermont beyond March 21, 2012," Attorney General William H. Sorrell said in a statement on Saturday.

"The court's undue reliance on the discussions among our citizen legislators, expert witnesses, advocates, and their constituents has the potential to chill legislative debates in the future. Left unchallenged, this decision could make it harder for ordinary Vermonters to clearly state their views in future legislative hearings," Sorrell said.

The Second Circuit Court of Appeals in New York City will hear the appeal, he said.

While debate over the safety of nuclear energy has intensified since last year's Fukushima disaster in Japan, the battle over Vermont Yankee goes back several years.

In February 2010, the Vermont Senate, then headed by now Governor Shumlin, voted 26-4 against authorizing the Public Service Board to issue a certificate of public good that the state required in order to keep the 620-megawatt plant running.

But last year, U.S. Nuclear Regulatory Commission (NRC) -- which has authority over the nation's nuclear fleet - extended Vermont Yankee's original 40-year operating license for another 20 years until 2032.

"We as a state have had many important and legitimate concerns with Entergy Louisiana and its operation of Vermont Yankee that are not reflected in (Murtha's) opinion," Shumlin said in a statement on Saturday. "I support the Attorney General's work in getting a positive result on appeal."

STATUS CONFERENCE MARCH 9

Judge Murtha blocked the state from shutting the reactor before March 21, but required Entergy to seek the certificate of public good from the Board. Entergy has now filed for that certificate, which would extend operations another 20 years.

New Orleans-based Entergy Corp, the country's second-biggest nuclear power operator, said on Saturday it was ready to respond to the appeal and committed to ensuring the plant, which employs 600 people, continues to generate power.

The Public Service Board has scheduled a status conference on the Vermont Yankee case for March 9, according to state utility regulators.

In its filing with the Public Service Board, Entergy said the Board already "has a fully sufficient record, without taking any additional evidence, to issue a decision either amending the existing certificate of public good or issuing a new one to authorize operation of Vermont Yankee for twenty years."

Entergy originally filed with the Board in 2008 and hearings were held in 2009 before the state senate voted in 2010 to stop the Board from deciding on the certificate.

The Public Service Board is a quasi judicial board that supervises rates, quality of service and financial management of the state's utilities, including Vermont Yankee.

In his January 19 decision, Judge Murtha ruled the state laws were preempted by the Federal Atomic Energy Act because the state laws were enacted with radiological safety concerns in mind. The safety of nuclear power is a federal issue, not a state issue.

One state act required legislative approval for continued operation of the plant after March 21, 2012 before the Public Service Board could decide to grant a certificate of public good.

The state gained authority over the plant in 2002, when Entergy bought it from New England utilities and agreed to seek a new certificate of public good if it decided to run the plant beyond March 2012 when its first license expired.

Other states like New York are keen to have that kind of power over the state's nuclear plants.

New York Governor Andrew Cuomo wants to shut Entergy's 2,063-MW Indian Point plant in part because it is located within the heavily populated New York metropolitan area just 45 miles north of Manhattan. Entergy hopes to keep running the two reactors for another 20 years after their federal operating licenses expire in 2013 and 2015.

(Reporting By Jonathan Leff and Eileen O'Grady in Houston, editing by Todd Eastham)