By Mike McDonald

GUATEMALA CITY (Reuters) - Former Guatemalan dictator Efrain Rios Montt's defense team rejected charges he allowed the slaughter of civilians in Guatemala's civil war, as his country became the world's first to prosecute an ex-head of state for genocide and crimes against humanity.

For decades, Rios Montt, 86, was not prosecuted for alleged atrocities committed during his 1982-1983 rule in a particularly bloody phase of the country's long civil war, protected as a congressman by a law that grants immunity to public officials.

Rios Montt, who left Congress last year, was finally ordered to stand trial in January when a judge found sufficient evidence linking him to the killing of more than 1,700 indigenous people in a counterinsurgency plan executed under his command.

Prosecutors allege Rios Montt turned a blind eye as soldiers used rape, torture and arson against leftist insurgents and targeted indigenous people in a "scorched earth" offensive that killed at least 1,771 members of the Mayan Ixil group.

The defense team had until now stalled the process with a series of appeals, arguing he did not control battlefield operations and that there was no genocide in Guatemala.

Rios Montt, who sat calmly listening to testimony through large earphones because of hearing problems, made it clear he would have little to say, on the first day of the trial.

"Whatever I say or don't say will be used against me," Rios Montt told reporters before the trial. "I have to keep quiet. I am staying quiet."

In opening statements, prosecutors argued that Rios Montt's government put indigenous people in concentration camps while employing rape and torture to terrify the population.

Nicolas Bernal, one of two eyewitnesses to testify for the prosecution, described the massacre of 35 men, women and children in the village of Nebaj in northwestern Guatemala in March 1982, just days after Rios Montt took power.

"Soldiers came and killed the ones who were working, the ones who didn't manage to escape," he said. "They took out these peoples' hearts, went to their homes and set fire to them."

Rios Montt's lawyer Francisco Garcia said he was innocent.

"We will demonstrate and you all will confirm that there was never a genocide in Guatemala. General Rios Montt is not guilty. He did not participate in the crimes that have been attributed to him," Garcia told the packed court.

In a bizarre twist, Garcia was later dismissed from the case by Chief Judge Iris Yasmin Barrios, citing Garcia's friendship with another judge on the panel. Other lawyers continued with Rios Montt's defense.

A prosecutor said that up to 130 victims and 75 experts are expected to testify during the trial, which is due to resume on Wednesday.

HISTORY MADE

Roughly 200,000 civilians, most of them of Mayan descent, were killed during the 1960-1996 conflict as a string of right-wing governments attempted to rid Guatemala of leftist guerilla fighters suspected of being in league with communists.

An additional 45,000 people went missing.

Victims and human rights advocates applauded the start of the trial over Rios Montt's 17-month rule.

"Finally we're going to know the truth. It's justice for the survivors and for the world," said Sandra Moran, 53, who was laying flowers outside the court before the trial started. Her uncle was tortured during Rios Montt's government, she said.

A United Nations-backed truth commission report released after the 1996 peace accords found that the army and paramilitary groups were responsible for more than 90 percent of the hundreds of massacres carried out during the war.

"Until quite recently, no one believed a trial like this could possibly take place in Guatemala," U.N. High Commissioner for Human Rights Navi Pillay said in a statement.

Pillay said it was the first-ever national trial of a former head of state on genocide charges.

Spanish human rights jurist Baltasar Garzon, who tried to prosecute ex-Chilean dictator Augusto Pinochet, also praised the trial, saying it was a big step forward for Guatemala.

"Finally, the principal of equality has become visible in a country where impunity has been the norm for a long time," he said, speaking at an event in El Salvador.

However, Guatemalan President Otto Perez, a retired general, reiterated that there was no genocide in the country and said the trial must be fair. "We insist that there be true justice, that there isn't pressure from one side or the other."

SCARS OF PAST

A three-judge panel must debate the material and set a date on whether to sentence or exonerate Rios Montt.

Born in Huehuetenango, a province in Guatemala's rural western highlands dotted with indigenous communities, Rios Montt took power in March 1982 when he led a military coup that toppled President Angel Guevara.

He remained politically active after being overthrown in a coup in August 1983, serving in Guatemala's legislature and launching an unsuccessful bid for the presidency in 2003.

Genocide trials have been rare for ex-leaders in Latin America, which was scarred by bloody civil conflicts and repression. Multiple charges were raised against Chile's Pinochet, but he died in 2006 before standing trial.

Often sporting thick glasses and a gray mustache, Rios Montt has been under house arrest for more than a year. The right-wing party that he founded changed its name this year to distance itself from its past.

Human rights groups filed a complaint against Rios Montt for genocide in 2001 and prosecutors will present hundreds of testimonies, videos and military documents in the trial against the former dictator, a process that could take months.

(Additional reporting by Stephanie Nebehay in Geneva, Nelson Renteria in San Salvador; Editing by Dave Graham, Eric Beech, Cynthia Osterman, Lisa Shumaker and Paul Simao)