The question of whether the controversial British-Indian author should participate dogged the festival even before it began last week, as its organisers tried desperately to juggle religious sensitivities with freedom of speech in the world's largest democracy.

"There are a large number of people averse to this video link inside this property. They have threatened violence," Ram Pratap Singh, owner of the hotel at which the festival was held, told the large crowd that had assembled to listen to the author.

"This is necessary to avoid harm to all of you."

Rushdie, whose 1988 novel "The Satanic Verses" is banned in India, last week cancelled plans to travel to the north-western city of Jaipur to address the festival in person after reported assassination threats against him.

Watched by an expectant crowd that spilled well outside the main stage area and hundreds of police officers, the event's organisers announced the cancellation of Rushdie's video-link appearance to a mix of boos and applause.

"The police commissioner told us there would be violence in the venue and a riot outside where thousands were gathering if we continued," festival director and noted author William Dalrymple said in a statement. "We have all received death threats, which are still continuing to arrive."

After an announcement at midday on Tuesday that Rushdie's address would go ahead, leaders of local Muslim groups began to congregate at the main entrance to the festival, vowing to protest if the video-link was shown.

"TRIUMPH FOR BIGOTRY"

"All of us feel hurt and disgraced. Artists have not been able to prevail," said Sanjoy Roy, the festival's producer, holding back tears as he addressed the crowd on the last day of the annual event, which this year drew 70,000 participants.

"It is very sad that we are having to close one of the best festivals in the world in this way."

Indian political parties have been widely accused of failing to support Rushdie for fear of offending Muslim voters ahead of an important state election in Uttar Pradesh, the country's most populous state, next month.

Electronic name badges, X-ray machines and police pat-downs greeted visitors to the 2012 festival, and close to 600 police were stationed around the five-stage venue in the capital of Rajasthan state.

India, where Muslims make up 13 percent of the 1.2 billion population, has a history of violent clashes between religious groups. Around 2,500 people, mostly Muslims, were killed in the neighbouring state of Gujarat in 2002 after a suspected Muslim mob burnt alive 59 Hindu activists and pilgrims inside a train.

"This is a big defeat. It's a triumph for bigotry," said Tarun Tejpal, editor of Indian news magazine Tehelka after the cancellation of Rushdie's speech.

The publication of "The Satanic Verses" over 20 years ago sparked a wave of protests and death threats around the world after Iranian leader Ayatollah Khomeini claimed that the novel's portrayal of the prophet Mohammad insulted Islam.

Five authors have been investigated by police in Jaipur for reading from the book at the festival, and English PEN, a writer's body, issued a statement late on Monday in their support.

"We felt that it was important to show support for Salman, who is often misrepresented ... This situation has arisen in India at a time when free speech is under attack," wrote Hari Kunzru, one of the authors involved, in the Guardian newspaper.

The five-day festival, which concluded on Tuesday, showcased over 260 writers from across India and the world, including best-selling authors such as Richard Dawkins, Tom Stoppard and Michael Ondaatje, and global television superstar Oprah Winfrey.

(Editing by John Chalmers and Raju Gopalakrishnan)

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