JERUSALEM, Nov 20 (Reuters) - Israeli Prime Minister Benjamin Netanyahu put on hold on Sunday legislation to limit foreign funding of non-governmental organisations, a government source said, after critics denounced the bill as a bid to mute left-wing groups.

A ministerial panel last week gave preliminary approval to the proposal. Supporters of the bill said it would help to prevent intervention by foreign states in Israeli politics.

The government source said Netanyahu, who had been seeking to exempt humanitarian groups from proposed donation limits, had put off until further notice a cabinet discussion that had been scheduled for Sunday on revising the legislation.

Cabinet approval of amendments would have paved the way for a series of parliamentary votes to turn the bill into law.

Israeli political sources said envoys from the European Union and Britain had complained about the legislation to a Netanyahu adviser.

In an interview with Israel Radio, Liran Dan, a Netanyahu spokesman, sidestepped a question as to whether the prime minister had effectively buried the bill.

"The prime minister supports the principle underlying this law," Dan said, giving no timeframe for any further cabinet debate.

The measure, proposed by members of Netanyahu's right-wing Likud party, has touched off a public debate in Israel on whether his government is stifling democratic freedoms and trying to muzzle critics of its policies towards Palestinians.

On Thursday, Israeli authorities shut down an Israeli-Palestinian radio station, "All For Peace", based in the occupied West Bank. A spokesman for Israel's Communications Office said it was a pirate station operating illegally.

But the station's Israeli director, Mossi Raz, said the order was aimed at silencing critics of Netanyahu's right-wing government.

Raz said the station had an operating permit from the Palestinian Authority, which exercises limited self-rule in the West Bank under interim peace deals with Israel.

In Tel Aviv, Israeli journalists convened what they called an emergency conference on Sunday in response to proposed amendments to the country's libel laws and what organisers said were assaults against freedom of the press.

The revisions would increase damages for plaintiffs who have been libeled and loosen criteria for proving slander.