UPDATE 2-Home-made bomb injures seven Bahrain policemen
* Four policemen with extensive burns - police source
* Interior Ministry says blast "act of terrorism"
* Bahrain due to host F1 grand prix on April 22
* Hunger striker being fed intravenously in military hospital (Adds details about condition of the wounded, background)
DUBAI, April 9 (Reuters) - Seven Bahraini policemen were wounded, three of them seriously, when a home-made bomb exploded on Monday, an Interior Ministry spokesman said, during a protest near the capital calling for the release of an activist on a two-month hunger strike.
Protesters threw petrol bombs at riot police to lure officers into Eker, a Shi'ite village outside the capital Manama, before the rare explosion was set off, the spokesman said.
"We consider this an act of terrorism," the spokesman said of the explosion, an escalation in violence which could cast further doubt on the staging of the Formula One grand prix this month in the kingdom that hosts the U.S. Navy's Fifth Fleet.
A police source later said two of the wounded were moved to Bahrain's largest hospital, the Salmaniya, with extensive burns but that two others were in such serious condition that they could not be transported there immediately.
On Sunday, Bahrain ruled out extraditing the jailed Bahraini political activist, Abdulhadi al-Khawaja, also a Danish citizen, despite a request from Denmark to hand him over because his health was worsening after a hunger strike.
Daily protests to demand his freedom have been taking place across the small Gulf Arab island state, which crushed protests mostly by majority Shi'ite Muslims against the Sunni royal family last year with the help of troops from Saudi Arabia and the United Arab Emirates.
Western rights groups say Khawaja and 13 other opposition figures in prison for their role in last year's protests are prisoners of conscience and should be freed.
Khawaja's lawyer said on Friday that the activist had been moved to a military hospital and was being fed intravenously.
F1 GRAND PRIX TARGETED
Protesters have also demonstrated against plans to host the Formula One grand prix. Last year's race in Bahrain was postponed, reinstated and then cancelled due to the uprising and bloody crackdown.
The governing International Automobile Federation (FIA), commercial supremo Bernie Ecclestone and Bahrain organisers have all said the April 22 race is on.
But motor racing teams headed to China on Monday for a race on April 15 were still unsure whether their return trip would take in Bahrain for the following meeting, due to safety fears.
Team sources told Reuters some had hedged their bets by routing personnel on return flights via Abu Dhabi, Dubai or Oman with alternative reservations for the last leg of the journey back from Shanghai.
As riot police wage almost daily pitched battles with masked petrol-bomb throwing protesters, analysts say the mainstream opposition may be losing touch with the youth who seek more revolutionary change.
An underground group calling themselves the Feb. 14 Youth Coalition - after the date when the uprising began last year - claims to speak in the name of disaffected Shi'ite youth, announcing protests and referring to "holy petrol bombs" and "martyrdom ambushes".
Bahrain says it is making progress implementing recommendations of an inquiry it commissioned last year into the unrest, the country's worst since sectarian-tinged political turmoil in the 1990s.
The inquiry found that some of the more than 2,000 people detained in the aftermath of the protests died under torture.
Bahrain denies charges of sectarian discrimination that protesters have levelled at its ruling family, and has called the demonstrations a destablisation attempt by Shi'ite Iran.
Iran denies any interference in Bahrain's affairs. (Writing by Firouz Sedarat; Editing by Robin Pomeroy)
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