(Reuters) - U.S. pro-democracy groups on Thursday blamed an Egyptian minister who was a holdover from the era of ousted President Hosni Mubarak for starting a campaign against American democracy activists that has strained U.S.-Cairo ties.

Minister of International Cooperation Faiza Abul Naga resented a reduction in U.S. aid that had been channeled through her ministry but was shifted last year to U.S. democracy-building groups, the groups´ leaders told a U.S. congressional committee.

"We can safely say that Faiza Abul Naga started this, but I think it has gotten out of control since then," said Lorne Craner, president of the International Republican Institute, one of the democracy- building organizations whose staff have been charged and prevented from leaving Egypt.

"With her lies about our activities, she has managed to convince some of the (Egyptian) military that we were doing nefarious things," Craner told the House Foreign Affairs Committee.

He and other leaders of the U.S. groups said they feared some of their activists may be imprisoned in Egypt as a result of accusations made against them there, which Craner said were false.

Charges have been brought against 43 foreign and Egyptian activists after investigators swooped down on the offices of civil society groups on December 29, confiscating computers and other equipment and seizing cash and documents.

Around 20 of those charged are Americans, and they have been banned from leaving Egypt. One is IRI´s Sam LaHood, the son of the U.S. transportation secretary.

AFFILIATED WITH U.S. PARTIES

The American groups raided were the IRI and the National Democratic Institute, both democracy-building groups loosely affiliated with the two main U.S. political parties, as well as the human rights group Freedom House and the International Center for Journalists.

The charges include allegations that the activists were working for organizations not legally registered in Egypt. The groups say they have long sought to register there.

They are also alleged to have broken the law by accepting foreign funds -- grant money from the U.S. government -- without Egyptian government approval.

The Egyptian government says the issue is a matter of law, not politics. But in Washington, both Congress and the administration of President Barack Obama have said the probe threatens U.S. aid to Egypt.

That aid has been running at about $1.55 billion in recent years; $1.3 billion of this has been military aid.

Abul Naga has linked U.S. funding of civil society initiatives to an American plot to undermine Egypt. She has spoken of what she calls an attempt to steer the post-Mubarak transition in "a direction that realized American and Israeli interests."

David Kramer, president of Freedom House, told the lawmakers that no more U.S. aid should go through Abul Naga´s ministry, which has handled non-military U.S. assistance in the past. He said that if the situation is not soon resolved, U.S. military aid should be suspended too.

"Unfortunately, I believe that only the suspension of U.S. military assistance will get the Egyptian government´s attention," Kramer told the committee.

Kramer said Abul Naga resented the decision by the Obama administration last year to shift nearly $20 million directly to IRI and NDI for the purposes of helping Egypt with its elections.

But he also said that while Abul Naga "has been the most public about this, this isn´t about one person.

CONCERTED CAMPAIGN

"This is about a concerted campaign against civil society, that is either being condoned by or allowed by the military leadership to take place."

The committee chairman, Representative Ileana Ros-Lehtinen, said no more U.S. aid should be provided to any ministry controlled by Abul Naga.

"The Egyptian government´s actions cannot be taken lightly and warrant punitive actions against certain Egyptian officials, and reconsideration of U.S. assistance to Egypt," Ros-Lehtinen said.

"For even if this issue were resolved tomorrow, this episode will color the way in which assistance is provided to Egypt," she said.

Mubarak was overthrown last year in a popular uprising. The army has managed Egypt since then but pledged to hand power to an elected president by the middle of this year.

The democracy groups´ leaders denied their activists had done anything improper or illegal. Ken Wollack, president of the National Democratic Institute, said it had never trained or funded protest movements, never funded political parties, and never supported a particular outcome in any election.

"Our goal is to support a transparent, democratic process that gives people the freedom to make choices," Wollack said.

Of the 10 organizations raided on December 29, five were foreign (the four U.S. groups plus the Konrad Adenauer Foundation of Germany) and five were Egyptian, Kramer said.

He said some additional 400 Egyptian non-governmental organizations have been under investigation and face "relentless" pressure from the government.

"The crackdown on civil society represents a clear effort to block a democratic transition in Egypt," Kramer said. (Reporting By Susan Cornwell; Editing by David Storey)(© Thomson Reuters 2012. 02/16/12)