* Lawsuit against plant pending in Malaysian court

* Political parties stake ground ahead of polls seen this year

By Angie Teo

KUANTAN, Malaysia, Feb 26 (Reuters) - Thousands rallied in the Malaysian state of Pahang on Sunday, calling on the government to overturn its approval for Australian miner Lynas Corp to operate a rare earths processing plant located in Prime Minister Najib Razak's base.

The rally -- led by environmental activists and opposition politicians -- attracted around 5,000 people to Pahang's state capital of Kuantan wearing green t-shirts and chanting slogans alleging the $200 million plant could leach radioactive waste into the environment.

Kuantan is about 25 kilometres (15.6 miles) from the plant.

Shares in Lynas jumped after it received a temporary operating licence approval in February, easing speculation the licence could be rejected in the face of opposition from political parties and local residents ahead of national elections expected within months.

But since the approval, a legal challenge launched in Malaysia threatens to delay one the world's few new major sources of rare earths aimed at alleviating China's stranglehold on global markets and putting further pressure on Najib to reconsider the plant.

Lynas has said its plant cannot be compared to a rare earths plant in Malaysia shut by a unit of Mitsubishi Chemicals in 1992 after residents there blamed the plant for birth defects and a high number of leukemia cases.

But an opposition leader disputed the argument.

"It is not about the investment, it is about the protection of the environment and security of Malaysians," opposition leader Anwar Ibrahim told Reuters.

"We demand the Australians hear the frustrations of the Malaysians."

Pro-government media said the opposition had hijacked the Lynas issue for political gains.

"When there is no compelling scientific evidence and these concerns rest on scary scenarios and advance contrarian political viewpoints, it would appear we have more to worry about the toxicity in the political environment than the risks of radiation," the New Straits Times said in an editorial on the eve of the rally.

The protest even spread to cyberspace where unidentified hackers took down Lynas corporate website and replaced it with a posting that said: "Stop Lynas, save Malaysia. Do not hurt my country."

The plant has been under construction since 2010 and is key to breaking major supplier China's hold on rare earths element that are used in electronic devices found in Apple's iPhone to Ford's Focus hybrid car.

• A Permanent Economic Emergency