By Andrew Osborn

MOSCOW (Reuters) - Armed, masked police raided a Moscow library specializing in Ukrainian literature, arresting its director before dawn on Thursday and carting off books that the authorities called illegal anti-Russian propaganda.

Russia's Investigative Committee said it had opened a criminal case against Natalya Sharina, the director of Moscow's Library of Ukrainian Literature, to determine whether she was guilty of inciting ethnic hatred and "denigrating human dignity".

Investigators had confiscated "anti-Russian propaganda", including "extremist" writings by Dmytro Korchinskiy, a Ukrainian nationalist author banned in Russia, the committee said. If convicted, Sharina could face up to four years in prison.

Kiev, which accuses Moscow of waging war on its territory on behalf of pro-Russian separatists in a conflict that has killed thousands of people, said the raid showed that the Kremlin had effectively outlawed expressing Ukrainian identity.

"This is another insolent act from the Kremlin aimed at intimidating the ethnic Ukrainian minority in Russia and launching a new round of repression against people linked to the Ukrainian language and culture," Ukraine's Culture Ministry said in a statement.

"For Russia's current political regime, any expression of Ukrainian identity has become a sign of 'Russophobia.' Therefore the Ukrainian language and culture and those who embody it are effectively banned in Russia."

Employees at the library, an unassuming green first floor building in central Moscow, told Reuters armed masked men, accompanied by investigators, had detained Sharina, 58, in the early hours of Thursday morning after searching the building all day on Wednesday and carting off around 200 books and pamphlets.

"They came at 8 in the morning," said Tatyana Muntyan, a library employee. "Comrades in masks with machine guns. They ran in and told her to sit down and not call anyone."

Investigators had also removed computers, servers and the library's catalog, she said. State TV showed a masked man clad in black and gray camouflage leaving the library with a large white plastic bag.

Story continues

Vitaly Krikunenko, a library employee, said the institution was one of the few links left between Russia and Ukraine. On Sunday, direct flights between the two countries were canceled as part of a tit-for-tat row.

"We play the role of a bridge," said Krikunenko. "Especially now when so much has been destroyed. Performers from Ukraine have stopped coming here and many other links have been severed, but our library, despite everything, provides a link."

MEMORIES OF USSR

A Kremlin spokesman declined to comment on the raid.

The library, which contains around 30,000 books, most of them in Ukrainian, has been targeted by Russian investigators before in 2010 and 2011. On Thursday, only two elderly men sat in its reading room leafing through books.

"Tell the world to defend this place," one of them, who declined to give his name, said. "It is an important place for academic study."

Although Syria has overshadowed the Ukraine crisis in Russian state media in recent weeks, sensitivities remain. Inside the library on a giant plastic map of Ukraine, someone has pinned the word "Russia" over Crimea to reflect the Kremlin's official position on the peninsula, part of Ukraine which Russia annexed last year.

In August, a Russian court sentenced Ukrainian film director Oleg Sentsov to 20 years in a high-security penal colony for "terrorist attacks" in Crimea.

Another Russian court is considering the case of captured Ukrainian military pilot Nadezhda Savchenko who is accused of complicity in the killing of two Russian journalists in eastern Ukraine.

Employees said the raid and their director's arrest was reminiscent of the Soviet era, when possession of banned literature carried stiff prison sentences.

"It reminds us of worse times," said Krikunenko. "Everything is not so simple now. Times change or, as you can see here, sometimes they return."

(Additional reporting by Maria Tsvetkova and Nataly Zinets and Alexei Kalmykov in Kiev; Editing by Christian Lowe)