UPDATE 1-Telenor refuses to block Pirate Bay access

* Telenor says will not block Pirate Bay

* Says sees no legal grounds for demand to block

* Says does not condone pirating or illegal file sharing

(Adds details, quotes, background, share price)

OSLO, March 2 (Reuters) - Norwegian telecom group Telenor (TEL.OL: Quote, Profile, Research) will not block access to the Swedish file-sharing website The Pirate Bay, despite demands from representatives of the entertainment industry, Telenor said on Monday.

Telenor said that a demand from international and Norwegian music and film industry associations to block access to The Pirate Bay had no legal grounds and Internet service providers (ISPs) could not be held liable for actions by Internet users.

Sites like The Pirate Bay allow people to download songs, movies and computer games without paying.

"Asking an ISP to control and assess what Internet users can and cannot download is just as wrong as asking the post office to open and read letters and decide what should and should not be delivered," Telenor said in a statement.

The entertainment industry is suing for damages in Sweden where four men linked to The Pirate Bay were charged last year by prosecutors for conspiracy to break copyright law.

The Pirate Bay enables Internet users to find files available for swapping, and the case in Sweden is being watched as a test of the entertainment industry's ability to protect copyright against file sharing by Internet users.

It pits entertainment industry giants such as Warner Bros (TWX.N: Quote, Profile, Research), MGM, Columbia Pictures (6758.T: Quote, Profile, Research), 20th Century Fox (NWSA.O: Quote, Profile, Research), Sony BMG, Universal (GE.N: Quote, Profile, Research) and EMI against a tiny group created in 2003, which says it is not responsible for what material is exchanged.

Telenor said it saw "no legal basis" for the demand for ISPs to control or assess the content that users download.

"At the same time, Telenor does not condone pirating of material and illegal file sharing," Telenor said in the statement.

"We comply with all relevant laws and regulations and can see no legal basis for any ISP to act in the interests of digital intellectual property rights holders by blocking individual websites," Ragnar Kaarhus, head of Telenor Norway, said in the statement.

In February, a Danish court ordered Telenor's Denmark-based ISP Tele2 to shut its customers' access to Pirate Bay.

Lawyers for the International Federation of the Phonographic Industry, the Norwegian videogram association Norsk Videogramforening and the Norwegian Film Distributors Association have demanded Telenor block access in Norway, Telenor said.

"The problem is not the ISPs, rather the rights holders themselves," Telenor said, noting that there had been successful efforts to protect downloadable content for sale, such as mobile phone ringtones and games.

Telenor shares traded down 3.56 percent at 35.20 crowns by 1516 GMT, slightly underperforming a weak Oslo bourse .

(Reporting by John Acher; Editing by Sharon Lindores)