BUDAPEST (Reuters) - Thousands of Hungarian students marched on parliament late on Wednesday despite the government suggesting a compromise to keep open a university founded by U.S. financier George Soros.

Central European University (CEU) found itself in the eye of a political storm after Hungary’s parliament passed the new law last week setting tougher conditions for the awarding of licenses to foreign-based universities.

Critics said the new terms would hurt academic freedoms and were especially aimed at CEU, founded by the Hungarian-born Soros after the collapse of Communism and considered a bastion of independent scholarship in the region.

In an apparent change of tack, Education Secretary Laszlo Palkovics said CEU, which specializes in social sciences, could continue to operate if it delivered its teaching and issued its degrees through its existing Hungarian sister school.

“We never wanted to close down CEU,” Palkovics told news website HVG.hu. “The question is whether CEU insists on having a license in Hungary or having courses in Hungary honored with a CEU degree ... (CEU’s own) license has little significance.”

Despite this, thousands of Hungarians protested in central Budapest against what they said was a crackdown on free thought.

Thousands of students broke off from an earlier protest in Heroes’ Square and marched some 3.5 km to the parliament, chanting “Europe! Europe!” and “Free country! Free university!”

They threw paper planes - alluding to allegations in Orban-friendly media that Soros had flown in foreign protesters.

One protester told Reuters he did not believe what the government said.

“Look at the law: they are still out to get CEU, they are still out to get Soros, they don’t care if they destroy the country in the process,” said Geza Lukacs, 22, an engineering student from the northern town of Vac.

CALLS FOR TALKS

Wednesday’s protests were the fourth major demonstration in the past two weeks as the government faces growing resistance a year before elections are due.

“They have pressed ahead since 2010 with new moves every day that hurt democracy in some way,” Robert Ferenczi, a 55-year-old protester from Budapest, told Reuters in Heroes’ Square.

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The dispute over the university has come to symbolize rival visions of Hungary’s future. Soros, whose ideal of an “open society” is squarely at odds with Orban’s self-styled “illiberal democracy”, has often been vilified by the prime minister.

CEU itself was taken by surprise at Palkovics’ comments.

“The solution evoked by State Secretary Palkovics in the press does not appear to be legally and operationally coherent and certain,” it said by email. “CEU has not been approached directly by Secretary Palkovics with this information.”

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“Exchanges in the press are no substitute for sustained direct contact on a confidential basis. We look to the Hungarian government to initiate negotiations with CEU so that we can resolve this.”

Government spokesman Zoltan Kovacs said the government would not suspend the law but added: “We are going to have talks with everyone; if the Soros university is driven by good intentions, it will be able to solve the problem.”

The law said the CEU must open a branch in its home state of New York alongside its campus in Budapest and secure a bilateral agreement of support from the U.S. government.

Both of those conditions would have been prohibitive by a deadline of January 2018, and CEU rejected them from the start.

The United States asked Hungary to suspend the implementation of the law, and the European Union on Wednesday threatened Orban with legal action for moves that it saw as undemocratic.

The European Union was adamant Hungary must show its actions would not harm democratic safeguards. “Taken cumulatively, the overall situation in Hungary is a cause of concern,” European Commission First Vice President Frans Timmermans said.