UNITED NATIONS, Oct 15 (Reuters) - A Palestinian bid to upgrade its U.N. status to a sovereign country would jeopardize the peace process with Israel and make it difficult to get the two sides to return to talks on a two-state solution, the United States said on Monday.

Having failed last year to win recognition of full statehood at the United Nations, Palestinian President Mahmoud Abbas said last month he would seek a less-ambitious status upgrade at the world body to make it a "non-member state" like the Vatican.

The president of the 193-member U.N. General Assembly, Vuk Jeremic, has said the issue will likely be debated in mid-November, after the U.S. election. Washington argues a Palestinian state can only be created through direct talks.

"Unilateral actions, including initiatives to grant Palestinians non-member state observer status at the United Nations, would only jeopardize the peace process and complicate efforts to return the parties to direct negotiations," the U.S. ambassador to the United Nations, Susan Rice, told the U.N. Security Council during a debate on the Middle East situation.

There have been no direct Palestinian talks with Israel on peace since 2010, when the Palestinians refused to resume negotiations unless the Israeli government suspended settlement building in occupied West Bank and East Jerusalem.

"Any efforts to use international fora to prejudge final status issues that can only be resolved directly by the parties will neither improve the daily lives of Palestinians nor foster the trust essential to make progress towards a two state solution," Rice said.

The Palestinians' current U.N. status is an "observer entity." If Abbas wins, that would change to "observer state."

JOINING INTERNATIONAL BODIES

Being registered as a state rather than an entity would mean the Palestinians could join bodies such as the International Criminal Court and file complaints against Israel for its continued occupation of land it seized in the 1967 war.

Russia's U.N. Ambassador Vitaly Churkin voiced support for the Palestinian drive.

"We believe that the initiative to gain broad international recognition for Palestinian statehood ... complements efforts to achieve a negotiated solution to the conflict with Israel rather than serve as an alternative," Churkin told the Security Council.

"In no case should they be used by Israel to tighten the screws in the occupied territories or exert any other pressure on the Palestinian authority," he said.

The Palestinians won admission to the United Nations Educational, Scientific and Cultural Organization in October last year, a move that prompted the United States to cut off funding to the U.N. agency.

A 1990s U.S. law prohibits U.S. funding to any U.N. organization that grants full membership to any group that does not have "internationally recognized attributes" of statehood.

The law could also prohibit American funding for any other U.N. organization that grants Palestinians full membership status, such as the International Atomic Energy Agency, which among other things monitors Iran's nuclear program.

U.N. Secretary-General Ban Ki-moon said last month that the two-state solution was the only sustainable option for peace. But he said the continued growth of Israeli settlements meant that "the door may be closing, for good."

The so-called two-state solution involves the creation of a state of Palestine to exist peacefully alongside Israel.