* Packer can operate casino using local partner's licence
* Religious leaders, opposition politicians oppose casinos
* Main opposition party says Sri Lanka has no real licences
* Government had earlier pledged not to allow casinos
By Ranga Sirilal and Shihar Aneez
COLOMBO, May 9 (Reuters) - Sri Lanka will not oppose the casino planned for a $400 million mixed-use resort being developed by Australia's Crown Resorts Ltd if it is operated using an existing license held by a local partner, a top government official said on Thursday.
The government's latest stance on casinos is contrary to what it said on April 25 when Australian gambling tycoon James Packer's Crown project was approved by the country's parliament. At that time the government said no casino would be allowed in the resort.
Opponents of casinos believe they will lead to a boom in prostitution and damage religious values and culture in the mainly Buddhist island nation.
But the gambling industry has been operating there in one form or another since at least the 1980s when many five-star hotels had their own in-house casinos featuring free drinks and food as well as floorshows in addition to the blackjack and baccarat tables.
Government spokesman Keheliya Rambukwella said casinos will be restricted to D.R. Wijewardena Mawatha, the area where Crown has planned the hotel and anybody can operate casinos in that area if they have a licence held by a local partner.
Rambukwella declined to comment on which government agency is authorised to issue casino licences and regulate the industry.
Rambukwella said whether it was Crown or another developer did not matter to the government as long as they worked with a local, existing licence holder.
"There is no legal barrier for existing casino businesses getting new partners. There are five licences issued and these licence holders can have one casino per licence. So there'll be five casinos." He added that there would be no new licences issued.
Government officials have told Reuters that two Sri Lankan entrepreneurs have five casino approvals between them. Packer's Sri Lankan partner, Ravi Wijeratne, owns two, and local business tycoon, Dhammika Perera, owns three.
Wijeratne and Perera could not be reached for comment. Officials with Crown did not respond to requests for comment.
Packer, one of Australia's richest men, first obtained cabinet approval for Crown's project in September, but the terms were altered and it has been dogged by delays.
CHANGING GOVERNMENT TUNE
President Mahinda Rajapaksa and his coalition government's changing stance on casinos has drawn criticism from Buddhist and other religious leaders, opposition parties and even from within its own ranks.
Stung by the criticism, the government had earlier amended public documents to remove the word "gaming" for Crown's project and two others being developed.
When the three projects were initially approved, both Rajapaksa and Economic Development Minister Basil Rajapaksa said they would not allow casinos.
Sri Lanka's main opposition, the United National Party (UNP), said the government is misleading foreign investors like Packer and the general public.
"There are no casino licences existing in Sri Lanka. I challenge Rambukwella to table these licences in the parliament," Harsha de Silva, a UNP legislator, told Reuters.
"Those local casino operators have only receipts for paying taxes for their casino operations. They are not licences. Still nobody knows who is issuing casino licences and who will regulate the business unlike specific licences in Singapore."
The other two projects being developed include a $300 million resort called Queensbury being built by Sri Lanka's Vallibel One Plc, which is expected to include casino near Packer's planned complex.
Sri Lanka's top conglomerate, John Keells Holdings Plc , has committed up to $850 million for another project called the Water Front, which will also include a casino.
Packer was most recently in the news on Friday when Australian police fined the billionaire gaming mogul and his friend, television executive David Gyngell, A$500 ($470) each after a wild street brawl in Sydney's world-famous beachside suburb of Bondi.
New South Wales state police said officers had issued a 46-year-old man and a 48-year-old man - identified by media as Packer and Gyngell - with notices for "offensive behaviour" that occurred on Sunday afternoon.
The fine will stand, but no criminal conviction will be recorded if neither of the men contests the notice, police said. A criminal conviction could complicate Packer's regional expansion plans.
Sri Lankan officials have said the fight has nothing to do with Packer's Colombo investment.
(Additional reporting by Maggie Lu-YueYang in SYDNEY; Writing by Shihar Aneez; Editing by Matt Driskill)