By Gareth Jones and Alissa de Carbonnel

KIEV (Reuters) - Anti-government protesters toppled a statue of Soviet state founder Vladimir Lenin in Ukraine's capital and attacked it with hammers on Sunday in a symbolic challenge to President Viktor Yanukovich and his plans for closer ties with Russia.

The gesture rejecting Moscow's historic influence over Ukraine came after opposition leaders told hundreds of thousands of demonstrators on Kiev's Independence Square to keep up pressure on Yanukovich to sack his government.

The protesters are furious that the government decided last month to ditch a landmark pact with the European Union in favour of closer economic cooperation with Moscow, Ukraine's Soviet-era overlord.

Yanukovich's sudden tack towards Russia has provoked the biggest street protests since the 2004-5 Orange Revolution, when people power forced a re-run of a fraud-tainted election and thwarted his first run for the presidency.

"Yanukovich, you are next!" read a poster stuck on the plinth where the red granite statue of Lenin had stood. People hacked off chunks of the prostrate - and now headless - leader of the 1917 Bolshevik revolution to take home as souvenirs.

Cheered by the crowd, a woman planted an EU flag on the pedestal where the 3-1/2 metre (11 feet, 6 inch)-high statue had stood since 1946.

Opposition leaders denied any link to its removal, clearly concerned that such an act could harm their cause. The spokesman of Ukrainian Prime Minister Mykola Azarov called the felling of the statue "barbarism", Interfax news agency reported.

The authorities and protesters have confronted each other for weeks, raising fears for political and economic stability in the former Soviet republic of 46 million people.

The demonstrators have erected blockades to defend the central Independence Square - now transformed into a tent village, sustained by donations of food and clothing - from any police attempt to retake it. They are occuping key public buildings and on Sunday erected blockades and tents on roads in the government district.

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"This is a decisive moment when all Ukrainians have gathered here because they don't want to live in a country where corruption rules and where there is no justice," said Vitaly Klitschko, a reigning world heavyweight boxing champion and leader of the opposition Udar (Punch) party.

Ukraine's opposition accuses Yanukovich, who met Russian President Vladimir Putin on Friday, of preparing to take the country into a Moscow-led customs union, which they see as an attempt to recreate the Soviet Union.

"RAZOR'S EDGE"

Yanukovich has said he decided to shelve the EU trade deal because it would have been too costly for Ukraine's struggling economy and the country needs more time to prepare. He says he is preparing a "strategic partnership" with Russia, but has not committed to joining the customs union.

"We are on a razor's edge between a final plunge into cruel dictatorship and a return home to the European community," jailed opposition leader Yulia Tymoshenko said in a message to Sunday's rally, read out by her daughter Yevgenia.

"Don't give in, not a step back, don't give up, the future of Ukraine is in your hands," the message read.

Last weekend, riot police beat protesters and journalists, drawing EU condemnation and swelling protesters' ranks.

Klitschko, increasingly seen as a national leader-in-waiting, told Sunday's crowd that their protests must remain peaceful, adding: "We do not want to be kept quiet by a policeman's truncheon."

He demanded the release of political prisoners, punishment of those responsible for last weekend's crackdown, the resignation of Prime Minister Azarov's government and early presidential and parliamentary elections.

European Commission President Jose Manuel Barroso urged Yanukovich by phone on Sunday to seek a dialogue with his opponents and to respect civil freedoms, the EU executive said. EU foreign policy chief Catherine Ashton will visit Kiev this week to help to find a way out of the crisis, it said.

Interfax news agency said Yanukovich also discussed the situation with U.N. Secretary-General Ban Ki-moon.

Kiev and Moscow have both denied that Putin and Yanukovich discussed the customs union when they met in the Russian Black Sea resort of Sochi, but further talks are planned for December 17.

Yanukovich and Putin, who regards Ukraine as strategically vital to Moscow's interests, are widely believed to have struck a bargain whereby Ukraine will get cheaper Russian gas and possibly credits in exchange for backing away from the EU.

PROTEST NUCLEUS

A group of protesters, chanting "revolution", started erecting tents and barricades near the government building after Sunday's rally, apparently aiming to halt normal government activity next week. Riot police stood guard nearby.

"We will stay till our demands are met and there is a change of government," said a 22-year-old man draped in a Ukrainian flag who gave his name as Sergei. "We don't want to be under Russia's thumb."

Independence Square, nucleus of the protest movement, is festooned with blue and yellow national flags and EU flags. People huddle around braziers to keep warm.

In a gesture sure to annoy Yanukovich, protesters hoisted a huge portrait of Tymoshenko onto a New Year tree, plastered with anti-government placards, that towers over the square.

The protest camp has been swelled by huge numbers arriving from Ukrainian-speaking western and central regions, where the opposition enjoys strong support.

A Tymoshenko ally, former interior minister Yuri Lutsenko, urged people in eastern Russian-speaking areas - the bedrock of Yanukovich's power - to join them. "We are the same people as you are, except they stole from you earlier," he said.

Sales worker Sviatislav Zaporozhit, 26, said the demonstrators were united by the desire for a change of government. "I don't want to go back to what my parents lived under the Soviet Union," he said. "When I am old, I want to live like people in Europe. I want to live in a normal country."

(Additional reporting by Richard Balmforth, Pavel Polityuk and Natalia Zinets; Writing by Gareth Jones; Editing by Mark Trevelyan and David Stamp)