* Designation increases pressure on Pakistan's government
* Haqqani commanders vows "hardship" for U.S. POW
By Andrew Quinn
VLADIVOSTOK, Russia, Sept 7 (Reuters) - The United States said on Friday it is designating the Pakistan-based Haqqani network a terrorist organization, which will trigger sanctions against a group American officials blame for high-profile attacks in Afghanistan, and which they say has ties to the Pakistani state.
The decision to blacklist the Haqqani network, announced by U.S. Secretary of State Hillary Clinton during a trip to Russia, could heighten tensions between Washington and Islamabad and have far-reaching implications for any reconciliation process in Afghanistan.
Senior Haqqani commanders warned as much, telling Reuters that it showed the United States was not sincere about peace efforts in Afghanistan. The commanders also said it would bring hardship for America's only prisoner of war, U.S. Sergeant Bowe Bergdahl, who is being held by the militants.
The Haqqanis, a Pashtun tribe with strongholds in southeastern Afghanistan and across the border in Pakistan, are blamed by Washington for an attack on the U.S. embassy in Kabul and other high-profile assaults in Afghanistan.
The United States accuses Pakistan's intelligence agency of supporting the Haqqani network and using it as a proxy in Afghanistan to gain leverage against the growing influence of its arch-rival India in the country. Pakistan denies the allegations.
But whether to brand the group as a terrorist organization has been the subject of intense debate within the Obama administration, with some officials arguing it will have little real impact but risks setting back Afghan reconciliation efforts.
Clinton said in a statement that she had told the U.S. Congress she will brand the Haqqani network a foreign terrorist organization, subjecting the group and its members to additional sanctions, including an asset freeze.
"We also continue our robust campaign of diplomatic, military and intelligence pressure on the network, demonstrating the United States' resolve to degrade the organization's ability to execute violent attacks," said Clinton, who was in Vladivostok for an Asia-Pacific Economic Cooperation (APEC) summit.
The United States also has targeted the Haqqanis with military strikes. U.S. and Pakistani officials say they have high confidence that Badruddin Haqqani, a top commander and son of the group's founder, was killed in a U.S. drone strike last month.
Clinton signed the report to Congress on Friday in Brunei stating that the network met the criteria to be designated as a foreign terrorist organization, the State Department said. A U.S. official said the formal designation would be made in the coming days.
Formal designation as a foreign terrorist organization would increase pressure on the Pakistani government, but any actual effects beyond that were unclear since most of the Haqqani leaders have already been blacklisted individually.
It also remained unclear how much damage the U.S. decision could do to ties with Islamabad. Relations have warmed slightly in recent months following a U.S. apology for an airstrike that accidentally killed 24 Pakistani soldiers, but remain fraught.
A senior Pakistani security official said blacklisting the Haqqani network would be counterproductive and would put unnecessary pressure on Islamabad, a strategic U.S. ally.
"If the United States wants to have a constructive relationship with Pakistan, then this is a bad move," the official said. "This will push Pakistan into a corner."
A spokesman for Pakistan's embassy in Washington said: "This is an internal matter for the United States. It is not our business. The Haqqanis are not Pakistani nationals."
In June, Defense Secretary Leon Panetta said the United States was reaching the limits of its patience with Pakistan because of the safe havens that groups like the Haqqanis found there.
Designation by the State Department as a foreign terrorist organization would bring sanctions such as criminal penalties for anyone providing material support to the group and seizure of any assets in the United States.
The Obama administration faced a congressional deadline this weekend to determine whether the network met the criteria for such designation.
In Congress, both Senate Intelligence Committee Chairwoman Dianne Feinstein, a Democrat, and House of Representatives Homeland Security Committee Chairman Peter King, a Republican, applauded the move and urged Pakistan to do more to take on the Haqqanis.
"This is a terrorist organization and an enemy of the United States, and I urge Pakistan to redouble its efforts - working with U.S. and Afghan partners - to eliminate the Haqqani threat," Feinstein said in a statement.
The Haqqanis run a sophisticated and diverse financial network comparable to a mafia group, according to a July report by the Center for Combating Terrorism.
It said the group raised money through kidnapping, extortion and drug trafficking but also had a business portfolio that included import/export, transport, real estate and construction interests in Afghanistan, Pakistan and the Persian Gulf.
But the group has never had to deal with a sustained attack on its finances, author Gretchen Peters said, and might be vulnerable to cash flow choke points and attacks on its small and centralized command structure.
"Network leaders appear to be as motivated by profit-making as they are driven by issues like revenge, honor and ideology," the report said.
In Kabul, a government spokesman said any move by Washington against the Haqqanis was welcome.
"This will be a major step by the United States against the Haqqani network who are still plotting for dangerous and destructive attacks against us," said Interior Ministry spokesman Sediq Sediqqi.