* Euro parliament chief caused waves in speech to Knesset
* Spoke of Israeli-Palestinian water supply disparity
* German-language address touches nerve in Jewish state
By Jeffrey Heller
JERUSALEM, Feb 13 (Reuters) - An Israeli cabinet minister said on Thursday that Germans should beware of criticising his country, alluding to Germany's Nazi past and pouring fuel on a dispute with a visiting politician.
Economy Minister Naftali Bennett and other members of his far-right Jewish Home party walked out of a speech to Israel's legislature on Wednesday by European Parliament President Martin Schulz, a German, after he cited allegations that Israel was denying Palestinians a fair allocation of water.
"I am not prepared to accept a situation in which someone stands up in the heart of the Israeli Knesset and delivers a speech - in German, to boot - and tells lies about Israel," Bennett told Israel Radio.
"I say, unequivocally, that someone speaking in German should be even more careful about saying things critical of the State of Israel. I have that expectation."
An EU source who declined to be named said it was hard to find a more pro-Israeli politician in Europe than Schulz, and that he was "shaken" by a controversy that had overshadowed what was meant to be a positive message.
Germany, whose chancellor Angela Merkel is due to visit this month, is often at pains to stress the responsibility it feels for the security of the Jewish state because of the Holocaust - the Nazis' slaughter of 6 million Jews in World War Two.
In the Knesset - which German politicians have addressed before in their native language - Schulz said a Palestinian youth had asked him why Israelis received four times as much water per capita as Palestinians in the occupied West Bank.
"I haven't checked the data," Schulz told the Knesset. "I'm asking you if this is correct."
Israel's B'Tselem group, which monitors human rights in the West Bank, said last month that per capita water use in Israel was three and a half times as much as in the West Bank, a ratio close to the one mentioned by Schulz.
A United Nations report released in December 2012 said Israelis living in Jewish settlements in the occupied West Bank consumed approximately six times as much water as Palestinians living in the same territory.
Schulz's comments also drew a rebuke on Wednesday from Prime Minister Benjamin Netanyahu, who said the disparity was significantly smaller than that cited by Schulz, although he did not give precise numbers.
"Now, the European parliament president said honestly, 'I haven't checked it' - but that didn't stop him from repeating (the figures) and making an accusation," Netanyahu said.
Israel has received five heavily subsidised submarines from Germany, three of which are already in active service.
Asked why Israel was prepared to accept submarines from Germany but not criticism, Bennett said: "We must not be the world's punching bag." (Editing by Crispian Balmer and Kevin Liffey)