Germany, with the biggest economy on the continent, is set to receive an estimated 800,000 migrants this year

* Merkel calls for solidarity, tolerance

* Arrival of large numbers of migrants fans hostility

* Cabinet approves funds to help towns cope with influx (Adds changes in policy on Syrian refugees, attack details)

By Hans-Edzard Busemann

HEIDENAU, Germany, Aug 26 (Reuters) - Dozens of protesters shouted at Chancellor Angela Merkel and waved placards with the slogan "traitor" on Wednesday when she visited an eastern German town where anti-refugee protests erupted into violence at the weekend.

Merkel, one of Germany's most popular postwar chancellors, vowed Germany would not tolerate xenophobia and repeated that the weekend scuffles, in which 31 police officers were hurt, were "shameful and repulsive".

"There is no tolerance for those people who question the dignity of others, no tolerance for those who are not willing to help where legal and human help is required," Merkel told reporters and local people in the town of Heidenau.

"The more people who make that clear ... the stronger we will be," she said, offering a message of support to those who have suffered abuse.

Europe is struggling to cope with a flood of migrants and refugees fleeing conflicts in Syria, Iraq and beyond.

Germany, which has relatively liberal asylum laws, is set to receive the largest share, estimated at some 800,000 people this year, equivalent to almost 1 percent of the total population.

With almost daily attacks on asylum shelters, politicians have warned of rising hostility towards foreigners.

Overnight, a suspected arsonist tried to set fire to an empty shelter in Leipzig and police in the town of Parchim arrested two men for breaking into a shelter wielding a knife.

Migrants at the Heidenau shelter told Reuters they hope to go to towns in western Germany where they believe life is easier for asylum seekers.

Merkel said her conservative-led government would change laws next month to ease the burden on German towns struggling to provide accommodation and other help for new arrivals.

Earlier on Wednesday her cabinet approved plans to double funding for municipalities this year to 1 billion euros and the amount available in the longer run is likely to increase.

A spokesman for the interior ministry confirmed that under new guidelines, refugees from Syria are now allowed to stay in Germany regardless of which country they entered the EU by.

Under EU rules migrants have to request asylum in the country where they enter the bloc but the flood of asylum seekers has prompted lawmakers to criticise that.

As Merkel met asylum seekers, police and politicians in Heidenau, about 50 protesters booed and waved signs saying "Volksverraeter" (traitor), a slogan adopted by the anti-Islam PEGIDA movement earlier this year.

"We are the mob," some yelled, referring to a description of the drunken far-right militants responsible for the violence by Merkel's deputy Sigmar Gabriel. On Tuesday, Gabriel's Social Democrats (SPD), who share power with Merkel's conservative, evacuated their headquarters after a bomb threat they said was linked to Gabriel's visit to Heidenau. (Additional reporting by Josie le Blond; Writing by Madeline Chambers; Editing by Gareth Jones)

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