TAIPEI/BEIJING, Aug 8 (Reuters) - Taiwan sped decisively away from remarks by its president that outraged China and obliged key ally Washington to disown them, saying on Thursday it will not hold an independence referendum unless Beijing forces it to.

But in Beijing, no one appeared to be buying the climbdown. State media poured fresh scorn on President Chen Shui-bian, saying he had revealed his dedication to "splitting the motherland" by backing a referendum and talking of two countries.

The United States signalled that Chen was on his own in the latest flare-up of cross-Strait tension, saying bluntly it will not support formal independence for the democratic island of 23 million people.

Taipei, busy trying to douse flames Chen ignited in a weekend speech to independence activists, said it would "ready, but not use" legislation for a referendum to defend itself against a foe which has vowed to use force, if necessary, to reunite it.

The cabinet's Mainland Affairs Council said in a policy paper the government was preparing the legislation, but would not use it unless Beijing forced the island to reunify under the "one country, two systems" formula used for Hong Kong and Macau.

"If communist China forces Taiwan people to change the status quo in the future, the Taiwan people will have the right to express their opinion through a referendum," the paper said.

Premier Yu Shyi-kun joined the damage-control effort, making similar remarks to U.S. businessmen during a New York stopover.

"If Taiwan maintains the status quo, legislation for a referendum would not be necessary," the United Daily News Group on Thursday quoted Yu as saying.

"BASIC HUMAN RIGHT"

Chen sparked the row on Saturday by saying a referendum was a "basic human right" and in reality there was "one country on each side" of the Taiwan Strait, half a century after the Communists' civil war victory sent the Nationalists fleeing to the island.

He was speaking by video-link to activists in Japan wanting the formal independence Taiwan has never declared, but the remarks did not go down well at home, where opinion polls have shown a majority of Taiwan people favour the status quo.

Stock markets tumbled early this week, Chen's own popularity sank to record lows and Beijing, which says it wants peaceful reunification but will invade if Taiwan declares independence, said furiously he was leading the island to disaster.

Talks on trade ties between the mainland and the island are off, analysts say, to the dismay of Taiwan businessmen who have already poured $100 billion into China but are eager for relaxations on restrictions on investment.

Washington's response was blunt.

"We do not support Taiwan independence," U.S. National Security Council spokesman Sean McCormack said on Wednesday, leaving Chen with no support on the issue from Taiwan's main ally, chief arms supplier and biggest trade partner.

"Our policy with respect to China and Taiwan and differences between the two is long-standing, well known and unchanged. The U.S. has a one-China policy," McCormack said.

DAMAGE CONTROL

Chen, who failed to warn Washington about his weekend statements, has been in damage-control mode ever since.

He began backpedalling on Tuesday, saying the media had oversimplified and misinterpreted his speech. Seeking to soften his "one country on each side" comment, he said a more appropriate way to sum up his position was "equal sovereignty".

Taiwan cancelled war games on Wednesday as part of apparent efforts to defuse tensions.

But China's military has said Chen might risk attack if he pressed ahead with a vote on independence.

Chinese state media made it clear on Thursday that Beijing was not prepared to let Chen wiggle out of his remarks.

"Chen Shui-bian's separatist cavils fool no one," said the official English-language China Daily. His defence was "only another way of trying to say that 'Taiwan is an independent state' with the ultimate aim of trying to split China," it said.

"Chen's statement is just further preaching for his separatist 'Taiwan independence' gambit," it quoted an official at the Association for Relations Across the Taiwan Strait, Beijing's semi-official body for negotiating with Taipei, as saying. Nampa-Reuters