* British PM says IS direct threat to UK, Europe
* Says UK should use military prowess against it
* Senior cleric criticises government policy
* Cameron announces crackdown on extremism at home
By Andrew Osborn
LONDON, Aug 17 (Reuters) - Britain should use its military prowess to tackle Islamic State (IS) militants in Iraq, Prime Minister David Cameron said on Sunday, saying they had to be stopped from creating "a terrorist state on the shores of the Mediterranean".
In his toughest comments yet on IS, an al Qaeda splinter group, Cameron said Britain needed to adopt a more robust stance against Islamic State to prevent it from one day launching an attack on British soil, a warning he first issued in June.
Britain has so far limited its role in Iraq to aid drops, surveillance and agreeing to transport military re-supplies to Kurdish forces. In addition, Britain's trade envoy to Iraq has said SAS special forces are gathering intelligence there.
"If we do not act to stem the onslaught of this exceptionally dangerous terrorist movement, it will only grow stronger until it can target us on the streets of Britain. We already know that it has the murderous intent," Cameron wrote in an article for Britain's Sunday Telegraph newspaper.
As part of its expanded role, he said he wanted Britain to lead diplomatic talks that include regional powers, possibly even Iran, to try to tackle the threat from IS.
In recent weeks the group has seized swathes of territory in Syria and Iraq, in a swift and brutal push to the borders of Iraq's autonomous ethnic Kurdish region and towards Baghdad, sparking the first U.S. air strikes in Iraq since the withdrawal of American troops in 2011.
Cameron said his government should also go further: "True security will only be achieved if we use all our resources - aid, diplomacy, our military prowess," he wrote.
"We need a firm security response, whether that is military action to go after the terrorists, international co-operation on intelligence and counter-terrorism or uncompromising action against terrorists at home."
Following an agreement with European Union partners last week, he said Britain would supply equipment directly to the Kurdish forces, adding that this could be anything from body armour to specialist counter-explosive equipment.
Cameron precluded a full-scale military intervention in the region however, saying he did not think that "sending armies to fight or occupy" was the right approach. He said he recognised that Britain's past involvement in conflicts in Iraq and Afghanistan had made people wary of over-committing.
'TERRORIST STATE THREAT'
Cameron has come under pressure at home from some lawmakers and former military commanders to follow the lead of the United States and take tougher action against the militants.
On Sunday, a cleric, Nicholas Baines, the Bishop of Leeds, added his voice to the debate saying the government lacked "a coherent or comprehensive approach to Islamist extremism."
He complained about what he said was the government's silence on the fate of tens of thousands of Christians in the Middle East who had been driven from their homes.
The last time Cameron tried to sign Britain up to potential military strikes in the Middle East, against Syria in August 2013, he lost a parliamentary vote. Cameron last week ruled out an immediate recall of parliament, which is in summer recess.
Cameron on Sunday also announced tougher action against anyone in Britain propagating IS ideology.
The Islamist movement's black flag was briefly raised over one east London housing estate in recent weeks and leaflets urging Britons to join its struggle were handed out in London.
"If people are walking around with Isil (IS) flags or trying to recruit people to their terrorist cause, they will be arrested and their materials will be seized," he said.
The authorities had taken down 28,000 pieces of "terrorist-related" material from the Internet, he added, including 46 videos directly linked to IS.
Cameron predicted the struggle against IS and its ideology would last the rest of his political lifetime.
"It (IS) makes no secret of its expansionist aims. Even today it has the ancient city of Aleppo firmly within its sights. And it boasts of its designs on Jordan and Lebanon, and right up to the Turkish border. If it succeeds, we would be facing a terrorist state on the shores of the Mediterranean." (Editing by Raissa Kasolowsky)