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A striking employee of Roissy airport holds a French CGT labour union flag during a demonstration against the labour reforms law at the Charles de Gaulle International Airport in Roissy, near Paris, France, June 7, 2016. REUTERS/Philippe Wojazer

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By Brian Love and Ingrid Melander

PARIS (Reuters) - France's government said on Wednesday that trade unions could hold a protest march in Paris after earlier telling police to ban the demonstration, reversing course under fire from union bosses and dissenters in the ruling Socialist Party.

Interior Minister Bernard Cazeneuve said he had personally ordered the ban but then decided to allow the protest on Thursday after an emergency meeting with the unions at which a compromise was reached on where the rally could be held.

"No violence will be tolerated," said Cazeneuve.

Hours earlier, Paris's police chief had said he had "no choice but to ban the demonstration" for safety reasons after the unions refused to stage the protest in a large square, wanting instead to march through the capital's streets.

The ban would have been the first outlawing of a union-organised demonstration since 1962.

Violence on the fringes of recent protests has stretched a police force already challenged by the demands of a state of emergency in place since Islamist militant attacks on Paris last November and fan violence during the Euro 2016 tournament.

The initial decision to ban the march sparked instant condemnation from lawmakers across the political divide and stirred tensions within the deeply divided Socialist Party.

Philippe Martinez, leader of the hardline CGT union, told a news conference that the right to protest had been restored.

The unions have been demonstrating since early March against planned reforms to loosen labour regulations and make hiring and firing easier. Trade unions say the proposal will erode the rights of workers, while the government says it is key to tackling unemployment which is running at 10 percent.

Hollande and his government have stood firm against union demands for the bill to be scrapped, even though opinion polls show he is France's most unpopular leader in decades.

Wednesday's compromise over the protest could spur hopes for a broader agreement on the draft law which is currently being debated in the Senate, said Frederic Dabi of Ifop pollsters.

"French voters don't like the law but they also want this to be over with," Dabi said.

"They consider the government and the unions are both responsible for the stalemate," he said, adding the government U-turn on the ban showed how tense the situation was.

Cazeneuve authorised a 1.5 km (1 mile) loop around a waterway at the foot of the Place de la Bastille square.

A police union official said ensuring security would be manageable as long as officers had the authority to arrest known troublemakers on sight and to usher crowds out of the area once they had completed the circuit.

Karine Berger, a Socialist lawmaker who has been critical of the government's policies, said on Twitter: "We're back to what French democracy should be like."

Backbench lawmaker Christian Paul had earlier said Prime Minister Manuel Valls was making "a historical mistake" with the ban, highlighting the rifts within the Socialist Party year ahead of presidential and legislative elections.

The last union-organised protest march to be banned in France -- against the war in Algeria -- was in 1962. The ban was defied, leading to clashes with police in which nine people died, eight of them CGT members.

(Additional reporting by Simon Carraud, Gerard Bon and Emile Picy; Writing by Richard Lough and Brian Love; Editing by Catherine Evans)

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