* Ministry move not to impact refinery projects underway -People's Daily
* Two firms currently have 3 million bpd of capacity at pre-approval stage
* CNPC, Sinopec also did not fix problems after missing 2011 targets
* Ministry to spend $6.5 bln on pollution monitoring systems (Re-leads, adds Sinopec statement, environmental spending plans, impact on refineries in pre-approval stages)
By David Stanway and Judy Hua
BEIJING, Aug 29 (Reuters) - China will stop approving some new refining projects and plant upgrades by the country's top two state oil firms, potentially holding up billions of dollars of investment to meet rising demand in the world's second largest oil market.
The move by the Ministry of Environmental Protection (MEP) against China National Petroleum Corporation (CNPC) and Sinopec Group came after they failed to meet key pollution targets in 2012, it said on Thursday. That could affect more than 3 million barrels per day (bpd) of planned capacity additions.
The ministry said on its website (www.mep.gov.cn) that it would suspend approvals of environment impact assessments for all new refining projects from the two oil giants, apart from any upgrades that target fuel pollution specifications or other environmental renovations.
It did not say how long the suspension would be in place. Companies typically would need tell the government how they will rectify their problems before approvals are resumed.
According to Reuters calculations, CNPC currently has 1.66 million bpd of planned capacity not yet approved, while Sinopec has 1.36 million bpd.
While the Communist Party mouthpiece People's Daily said the MEP's move would not impact 790,000 bpd of refining capacity under construction, a senior analyst with one of China's big oil firms said the decision could be a blessing in disguise.
"It could actually be a big opportunity for other refiners - there is a glut in capacity and a slowdown in approvals could help," said the analyst, who didn't want to disclose his name citing the sensitivity of the issue.
CNPC was not immediately available for comment, but Sinopec spokesman Lu Dapeng said in a statement that the emissions problem only affected a small number of its subsidiaries, which had dragged down the group's overall performance.
"The majority of Sinopec's more than 120 subsidiary enterprises all met the requirements ... for 2012," he said.
Sinopec doesn't expect any business impact from the suspension, he said.
He said Sinopec is planning to spend 22.87 billion yuan ($3.74 billion) on "environmental treatment projects" in the next three years. But the company was only able to install new equipment during overhaul periods, which normally occur just once in every three or four years, he said.
CNPC is the parent of PetroChina, China's dominant oil and gas producer. Sinopec Group is the parent of top Asian refiner Sinopec Corp .
The environment ministry and its local branches have struggled to impose their will on state-owned industrial enterprises, which are big sources of economic growth as well as pollution. But Beijing has promised to get tough on firms accused of ignoring environmental rules or approval procedures.
People's Daily said on Thursday the decision "demonstrated China's determination when it comes to pollution emissions."
"Such tough punishment on the two oil majors is unprecedented - it is a warning to others," said Wang Tao, resident scholar at the Energy & Climate Program of the Carnegie-Tsinghua Center for Global Policy in Beijing.
"But the MEP has only suspended approval for their new refineries, and what we really need is for them to take strong measures to curb pollution from existing refineries," said Wang.
The two firms were given time to rectify their problems after failing to meet emissions targets in 2011, but they did not install mandatory pollution controls at many of their facilities, the paper said. Several CNPC subsidiaries also supplied falsified emissions data to authorities, it said.
In May, the MEP said a subsidiary of CNPC, together with several state-owned power and steel enterprises, deliberately misused emissions control technology and submitted inaccurate data. A nationwide investigation into the problem is underway.
Measuring pollution remains one of the ministry's biggest challenges. It said earlier this month that it was planning to spend 40 billion yuan ($6.54 billion) over the 2011-2015 period to try to beef up its monitoring systems.
According to industry sources, big state-owned firms have been complaining to the National Energy Administration that the current emissions standards are too tough and that more incentives and subsidies are required to help them comply.
People's Daily said CNPC and Sinopec could not blame funding problems for these "extremely embarrassing circumstances" because they had both managed to meet tough pollution standards at their overseas projects.
"Central government-run enterprises have enough technology and funds to resolve these problems - the problems arise in the subsidiaries but the root cause is in the group companies," it quoted an official with the environmental ministry as saying. ($1 = 6.1202 Chinese yuan) (Editing by Manash Goswami and Tom Hogue)