UPDATE 2-India investigates bank accounts of Gates Foundation - source

* India has cancelled thousands of charity licences (Recasts with details of investigation)

By Rupam Jain Nair

NEW DELHI, May 6 (Reuters) - India is investigating the finances of the Bill & Melinda Gates Foundation, a senior Home Ministry official said on Wednesday, part of a growing crackdown on thousands of foreign funded charities and activists that has alarmed Washington.

A spokeswoman for the Gates Foundation said it had not been informed of any investigation. Home Ministry spokesman K.S. Dhatwalia denied the government was investigating it. It was not immediately possible to explain the contradictory statements.

The senior ministry official, who has direct knowledge of the investigation, said authorities found discrepancies in financial transactions between the foundation and the Public Health Foundation of India (PHFI), a renowned policy institute.

"The credit amount did not match the debit amount. At this stage we don't know who is at fault, whether it's the people at Gates foundation or at PHFI. This aspect is under scrutiny," the official said, declining to be named due to the sensitivity of the matter.

In a statement on Wednesday, the foundation said its work and investments in India were guided by the rules and regulations laid out by the government.

"We apply a rigorous approach to funding our partners, monitoring and evaluating the effectiveness of the work on the ground at every step, and modifying the approach if something is not working out," it said.

The charity funded by the personal wealth of Microsoft co-founder Bill Gates, the world's richest man with a fortune estimated by Forbes at $79 billion, has enjoyed good relations with the government of Prime Minister Narendra Modi.

It has been awarded an Indian civil honour for social work and Melinda Gates visited India last month and met Modi.

LICENCES CANCELLED

In April, the government cancelled nearly 9,000 licences of charities accused of not declaring donations from abroad, and it has launched actions against Greenpeace and the Ford Foundation.

Modi, a right-wing nationalist elected last May, wants to increase investment in infrastructure and make it easier for businesses to buy land to boost Asia's third-largest economy.

That has set his government at odds with non-governmental organisations that oppose untrammelled economic development such as Greenpeace, an international environmentalist campaign group.

Greenpeace India faces closure after authorities froze its bank accounts, the group's head said late on Tuesday, accusing Modi's government of "strangulation by stealth".

The Ford Foundation, another of the world's largest charitable funds, was put on a watch list after the Home Ministry said it was investigating funding to a group run by a prominent activist and critic of Modi.

The U.S. ambassador criticised the moves against foreign-funded charities and activists in the world's largest democracy.

"Because a vibrant civil society is so important to both of our democratic traditions, I do worry about the potentially chilling effects of these regulatory steps focused on NGOs," Ambassador Richard Verma said in New Delhi on Wednesday.

The U.S. State Department has sought a clarification over the restrictions on non-governmental organisations.

The world's wealthiest foundation, Gates spends millions of dollars supporting India's fragile health sector and has backed efforts to increase access for the poor to financial services. (Additional reporting by Nidhi Verma and Manoj Kumar, Nita Bhalla; Editing by Frank Jack Daniel, Douglas Busvine and Alison Williams)