* U.N. says Eritrea's support for rebels continues
* Eritrea points to lack of hard evidence
By Jeremy Clarke
ASMARA, March 16 (Reuters) - Eritrea has responded angrily to a report by a U.N. monitoring group alleging that the Asmara government is still supporting insurgent groups fighting the Somali administration.
In December, the U.N. Security Council imposed sanctions on Eritrea, accusing it of backing rebel groups in Somalia, where at least 21,000 people have been killed in violence since the beginning of 2007.
The latest report by the U.N. Monitoring Group on Somalia, which is being discussed by the Security Council this week, said Eritrea had continued its support in 2009.
In a statement issued on Monday, Eritrea's Foreign Ministry described the allegation as "concocted, baseless and unfounded", adding: "It is indisputable that Eritrea had not and would never extend any support to Somali armed groups.
"The government of Eritrea challenges those quarters indulging in utterly baseless allegations through fabricating and disseminating naked lies in the name of the U.N."
Eritrea repeated its call for hard evidence to be presented publicly and demanded an independent platform allowing it to respond.
The new U.N. report softens accusations made previously, saying there is less evidence Eritrea is still providing military support to insurgents.
However, it says Asmara continues its diplomatic, logistical and financial support for the rebels.
"By late 2009, possibly in response to international pressure, the scale and nature of Eritrean support had either diminished or become less visible, but had not altogether ceased," the report said.
"It is the opinion of the Monitoring Group that the government of Eritrea has continued to provide political, diplomatic, financial and -- allegedly -- military assistance to armed opposition groups in Somalia."
A Western diplomat told Reuters it was regrettable the charges against Eritrea could not be more widely substantiated, but said there was evidence that could not be made public for security reasons.
Asmara says the lack of hard evidence makes the sanctions resolution illegitimate and illegal.
When Ethiopia, Eritrea's neighbour and arch-enemy, invaded Somalia in 2007 to drive out an Islamist administration in the capital, some of the leaders sought refuge in Eritrea.
The Islamists formed an opposition party but the leadership split when Sheikh Sharif Ahmed joined a Western-backed peace process and was elected president of Somalia in January 2009.
His former ally, Sheikh Hassan Dahir Aweys, left Eritrea last year and is now leader of the Somali insurgent group Hizbul Islam which is fighting Ahmed's government. (Additional reporting by Abdiaziz Hassan in Nairobi) (Editing by David Clarke and Andrew Dobbie)