JERUSALEM, March 30 (Ori Lewis/Reuters) - Jerusalem's Anglican bishop, a Palestinian, is engaged in a legal battle with Israel over its refusal to extend his residency permit, a church official said on Wednesday.

The official, who declined to be named, said Israel's Interior Ministry had written to Bishop Suheil Dawani and accused him of improper land dealings on behalf of the church and the Palestinian Authority, allegations he denies.

A spokeswoman for the Interior Ministry declined to comment, citing an upcoming court hearing.

Dawani was elected Bishop of the Diocese of Jerusalem in 2007, and as a non-Israeli was required by Israeli authorities to obtain temporary residency permits. These were granted to him in 2008 and 2009, but not last year.

Dawani, born in Nablus in the occupied West Bank, lives with his family in East Jerusalem. Both areas were captured by Israel in a 1967 war. Israel annexed East Jerusalem after the conflict in a step that is not internationally recognized.

The church official said the church had petitioned an Israeli court to order the Interior Ministry to grant new residency permits and a hearing had been set for May 18.

In the meantime, Dawani's lawyer said, it appeared no moves were imminent to deport him.

The Council of Religious Institutions in the Holy Land (CRIHL), which represents Jews, Muslims and Christians, issued a statement on Tuesday voicing concern about Dawani's case. The CRIHL calls upon the authorities who have jurisdiction in this matter to find a quick issue without delay, it said.

A statement from the Anglican Diocese of Jerusalem said it had appealed to Israeli President Shimon Peres, Prime Minister Benjamin Netanyahu and senior Anglican and political officials in the United States and Britain to intervene.

(Editing by Mark Trevelyan)