NEW DELHI Indian Prime Minister Atal Behari Vajpayee crossed swords over economic reform on Friday with a trade union allied to his Nationalist Party.

The public disagreement on a planned revamp of decades-old and rigid labor laws came amid reports of mounting internal dissent after his party's setback in state elections and a sensational bribery scandal.

Vajpayee told a labor conference that there was no turning back on economic reforms and defended his coalition government's plans to make it easier for companies to lay off workers, Reuters reported.

"There will be pain in the transition, but there is no scope for going back on reforms. We are not as fortunate as some other nations ... who have oil, other resources," he said.

The government drive for a "second generation of reform", and notably its plan to overhaul labour laws, has run into opposition from the Hindu nationalist Rashtriya Swayamsevak Sangh (RSS), the deeply influential ideological parent of Vajpayee's party.

A leader of the RSS trade union arm struck a discordant note at the conference, which ironically had been organized to build a consensus on labor reforms, even before Vajpayee had spoken.

Bharatiya Mazdoor Sangh leader Harsubhai Dave demanded an entire review of the 10-year-old reform program, including privatization, which he said had led to lay-offs of thousands of workers and the closure of state-owned enterprises.

"The manner in which disinvestment has taken place, the manner in which foreign investment is being brought in, even in the defense sector, arouses serious concerns about the government's motives," Dave said.

He demanded consultation before any labor law changes.

The reforms would remove the obligation for firms employing up to 1,000 workers to seek government approval before laying off workers. Previously only firms with fewer than 100 workers were allowed to cut staff without government consent.

Vajpayee argued that the new law would lift economic growth and eventually lead to greater employment, and sought to reassure his audience that workers' interests would be protected.

The RSS, or National Volunteer Corps, sees itself as the conscience-keeper of Vajpayee's Bharatiya Janata Party (BJP).

It advocates economic self-reliance and fiercely opposes what it sees as indiscriminate opening up of the economy to foreign capital.

The **** Times of India **** said on Friday that the RSS was now sharpening its knives against Vajpayee for pursuing reforms that had compromised its rigid ideology.

"The top RSS leadership ... is convinced that Prime Minister Vajpayee's leadership is proving disastrous both for the BJP as a party as well as the government it heads, not to mention the ideology it espouses," the paper said.