* Group targets include US embassy, mining company -police
* Group may have links to a Kashmir militant group -analyst
* Arrests come 10 years after Bali bombings
By Matthew Bigg
JAKARTA, Oct 28 (Reuters) - Indonesia's arrest of 11 suspected Islamic militants it said planned to attack the U.S. embassy and a plaza near Australia's embassy is evidence that legal extremist groups are turning to violence, analysts said on Sunday.
The arrests could also step up pressure on the government of President Susilo Bambang Yudhoyono, criticised for doing too little to curb religious intolerance in the country which has the world's largest Muslim population.
Anti-terrorist squad Detachment 88 squad seized bomb-making equipment and one bomb ready to be used by militant group Harakah Sunni for the Indonesian Society (HASMI), National Police spokesman Suhardi Alius said.
The arrests by the elite squad on the island of Java were the latest in a crackdown against militants during which dozens have been arrested and at least seven killed.
They come 10 years this month after a bomb attack on Bali killed 202 people, most of them foreign tourists.
"The first piece of evidence was found at a housing complex in Madiun (Java), a bomb ready to detonate, as well as raw materials for bomb making and instruction books on how to make bombs," Alius said.
He listed targets as the U.S. consulate in Surabaya, East Java, its embassy in Jakarta, Plaza 89 in Jakarta, which is in front of the Australian embassy, and the offices of prominent mining company Freeport-McMoRan Copper & Gold.
HASMI also planned to attack the Mobile Police Brigade in the central Java city of Srondol, he said, adding that the spiritual leader of the group had been arrested.
The State Department in Washington declined to comment. A spokeswoman for the U.S. Defense Department said she was unaware of any request by the State Department to increase security at its embassy in Jakarta.
Australia's Department of Foreign Affairs and Trade declined to comment on security at its Jakarta embassy and a spokesperson said it had no information to suggest Australian citizens or interests were the group's intended target.
"ABOVE GROUND" EXTREMIST GROUP
HASMI first surfaced in 2009 as a small "above ground extremist" organisation based in West Java and with links to the Islamic Defenders Front (FPI), said Todd Elliott, a terrorism analyst at Concord Consulting in Jakarta.
HASMI participated in protests against churches in West Java in 2010 as well as protests against Israel and their overall goal was the establishment of Sharia law in Indonesia, he said.
Until now, HASMI has not been linked to illegal activity. It existed, like the FPI, as a militant pressure group separate from Indonesia's banned militant organisations, Elliott said.
"They (HASMI) definitely pose a very real threat. We are seeing the next step in a bigger trend of above ground extremist groups crossing over into violence," he told Reuters.
Members of the FPI had also been implicated in previous attacks, including a suicide attack on a mosque used by police in Cirebon, West Java, in 2011, he said.
The suspected militants could be former members of HASMI, a Salafi group, said Jim Della-Giacomo, Southeast Asia project director at the International Crisis Group think tank.
Salafi Muslims are generally against violence but there are cases in which they turned to violence, Della-Giacomo said.
"The apparent choice of the U.S. embassy as a target shows that the so-called 'far enemy' is still a desirable target among Indonesian jihadis ... and not just Indonesian police or the so-called 'near enemy' who have been preferred in recent times," he said.
The group's name links them to a militant group operating in Kashmir and it is possible that some of its members may have trained with the Kashmiri group, said Damien Kingsbury, a professor at Deakin University in Australia.
HASMI's members would also likely have at least informal links with other militants in Indonesia and the group's existence is further evidence of the continuing threat, said Kingsbury, an expert on Indonesia.
The 2002 Bali bombings, which in turn came just over a year after the Sept. 11 attacks on the United States, were a watershed for Indonesia. They forced the secular state to confront the presence of a small but dedicated group of followers of Osama bin Laden bent on attacking Western targets.
Indonesian forces has since worked with Australia and other countries to crack down on the al Qaeda-linked Southeast Asian militant group Jemiah Islamiah that was behind the bombs.
The hunt led to the arrest of hundreds of militants. Many were killed in shootouts and the three main perpetrators of the bombings were convicted and executed by firing squad in 2008.
Indonesia has been largely successful in containing militant attacks and there have been no large-scale attacks on Western targets since 2009 when suicide bombers blew themselves up in two Jakarta hotels, killing nine people and wounding 53.