* Thousands clashed with police in Taksim last May
* Subsequent nationwide unrest challenged Erdogan's rule
* Unions insist they will gather in Taksim
By Gulsen Solaker
ANKARA, April 22 (Reuters) - Turkish Prime Minister Tayyip Erdogan said on Tuesday he would not let unions stage a May Day rally in Istanbul's Taksim Square, where huge protests took place last year, in an announcement that may set the scene for fresh clashes there.
The government has suggested next week's traditional gathering should take place at a special venue on the outskirts of Istanbul, rather than in the city centre, but unions have rejected that idea.
The authorities issued a similar ban last year, leading to thousands of anti-government protesters fighting with police as they tried to breach barricades around the huge square, which in previous years was a focal point for labour demonstrations.
That violence was followed by mass protests that spread across Turkey late last May, in one of the biggest challenges to Erdogan's rule since his AK Party came to power in 2002.
"Give up your hope of Taksim," Erdogan said at a meeting of AK lawmakers in parliament.
"The people do not want to see protesters clashing with police in the street. The people don't want streets scenes dominated by stones, sticks and Molotov cocktails."
A small group of union members scuffled with police on Monday in Taksim Square, which is surrounded by hotels, restaurants and shops, after they tried to announce their intention to stage a May Day rally there regardless of the ban.
One union confederation, DISK, argued that a 2012 ruling by the European Court of Human Rights, which said the Turkish government had violated the principle of freedom of assembly by intervening in earlier Taksim May Day celebrations, gave them the right to rally at the square.
"Disregarding this decision is to ignore the law. We declare once again: On May 1, we will be in Taksim," DISK said in Monday's statement.
Thousands of police are likely to be on duty in central Istanbul to prevent that happening.
Last summer's anti-government protests were triggered by an environmental demonstration against the redevelopment of Gezi Park, which adjoins Taksim Square.
Despite that unrest and a high-level corruption scandal that emerged in December, Erdogan's AK Party swept to victory in nationwide local elections on March 30. Buoyed by the result, Erdogan is expected to run for president in an August ballot.
Erdogan said the state had designated places were rallies could be held, including an area of reclaimed land overlooking the Marmara Sea, where the prime minister's AK Party staged a large rally in its campaigning for the March 30 elections.
May 1, a traditional workers' day holiday across most of Europe, was cancelled as a national holiday in Turkey following the 1980 coup, but was reinstated in 2010.
Dozens of people celebrating May Day were killed in Taksim in 1977, either shot or trampled to death when unknown gunmen opened fire in the square. (Additional reporting by Humeyra Pamuk and Ayla Jean Yackley; Writing by Daren Butler; Editing by Crispian Balmer and Hugh Lawson)