* Proposed law would have re-instated defamation as a crime
* Ukrainian press had said move spelled "death of journalism"
* Important to defend free press before election, says Yanukovich
KIEV, Sept 26 (Reuters) - Ukraine's ruling party put plans to try to re-instate defamation as a crime punishable by jail on hold on Wednesday after politicians and media slammed the Soviet-era law as another curb on the free press ahead of a parliamentary election next month.
A draft law which would have allowed prison terms of up to five years for offenders was rushed through its first reading on Sept. 18 by deputies of President Viktor Yanukovich's Party of the Regions and their allies, who hold the majority in parliament.
The proposed libel law would have applied to anyone, including the media, who spread "deliberately untrustworthy information" which denigrated a person, hurt their honour and dignity or undermined their business reputation.
The proposal to return the legislation to the books 11 years after it was removed led to an outcry from the political opposition and from independent media who say they face increased harassment from the authorities in the run-up to the Oct. 28 election.
Yanukovich himself criticised the timing of the proposal on the sidelines of the U.N. General Assembly on Tuesday, and on Wednesday the Party of the Regions deputy who introduced the law said he was removing it from parliamentary discussion, at least until after the election.
"Having weighed up all the circumstances and acting in the interests of the state, I have decided to withdraw this draft law," Vitaly Zhuravsky was quoted by Interfax news agency as saying.
"I understand that on the eve of the election to parliament any initiative like this is regarded, at the very least, with fear and mistrust," he said.
Speaking to Ukrainian journalists in New York, Yanukovich said it was important that Ukraine apply general European standards in dealing with the media.
"If we say on the one hand we are creating the right conditions for journalists and the media and then do the opposite, no-one will understand us," he said, according to a statement on his website.
"Zhuravsky ... heard my point of view, the point of view of this in his party. Such decision must not be taken hastily," Yanukovich said.
The United States and other Western governments say moves to curb media criticism inside the former Soviet republic are part of a gradual back-sliding on democracy and a trend towards greater authoritarianism since Yanukovich came to power in February 2010.
Opposition parties have used curbs on media freedoms as an issue in their election campaign. (Writing by Richard Balmforth; Editing by Sonya Hepinstall)