* Plans to diversify economy away from oil
* Vows to protect local farmers from land grab
LUANDA, March 24 (Reuters) - Angola's parliament on Wednesday approved a new law to regulate the production of biofuels, opening the way for multi-billion dollar investments in the sector.
The African nation, which rivals Nigeria as the continent's top oil producer, hopes the move will help lessen its dependence on oil and develop a farming sector wrecked by an almost three-decade long civil war that ended in 2002.
Oil Minister Botelho de Vasconcelos said several foreign firms were interested in investing in sugar and ethanol production in Angola and dismissed fears that the land used to grow biofuel crops would displace small-scale farmers.
"This new law will help us attract foreign investment. This is a historical step for Angola," said Botelho de Vasconcelos shortly after the law was approved by parliament. "We need to diversify our sources of energy."
Last year, Angola's state oil company Sonangol, Brazilian construction firm Odebrecht and private Angolan group Damer began planting sugar cane in a 30,000 hectare (74,000-acre) site in Malange in the country's first ever biofuel project.
With the new legislation, the ethanol produced by the project can be used in cars. Other sub-Saharan African nations like South Africa and Mozambique are also ramping up their ethanol production.
The trend has raised fears in rural communities all the way up to the United Nations that private and foreign ownership of African farmland could displace farmers and threaten access to food, water and other resources.
Agriculture Minister Pedro Canga also brushed aside such fears. He told members of parliament his government would only allocate marginal land to the production of biofuels while the more fertile land would be used to develop agriculture.
"There is no incompatibility between food production and biofuel production," he said, adding his government was working hard on developing agriculture in Angola to lift millions of people living in rural areas out of poverty.
Angola was a top coffee, banana and sugarcane exporter before a 27-year civil war after independence from Portugal in 1975 led to a mass exodus of farmers to the cities.
The country now relies on imported food to satisfy most of its needs, which has helped drive inflation to close to 14 percent and also contributes to making Luanda one of the world's most expensive cities for foreigners.
Under the new law, foreign companies which invest in biofuels must sell to state-owned oil firm Sonangol part of their biofuels production to satisfy Angola's internal consumption needs.
It also states that foreign companies must provide local people with medical assistance and access to water and other basic resources in the land they are using to produce biofuels. (Editing by James Jukwey)