* Police target 17 pro-democracy and rights groups
* Offices of U.S.-funded organisation sealed
* U.S. concerned, hints military aid could be reviewed (Adds joint statement by rights groups; analyst comment)
By Marwa Awad and Sherine El Madany
CAIRO, Dec 29 (Reuters) - Egyptian prosecutors and police raided offices of 17 pro-democracy and human rights groups on Thursday - drawing criticism from the United States which hinted it could review its $1.3 billion in annual military aid.
The official MENA news agency said the groups had been searched in an investigation into foreign funding.
"The public prosecutor has searched 17 civil society organisations, local and foreign, as part of the foreign funding case," MENA cited the prosecutor's office as saying. "The search is based on evidence showing violation of Egyptian laws including not having permits."
Among groups targeted were the local offices of the U.S.-based International Republican Institute (IRI) and National Democratic Institute (NDI), a security source and employees at the organisations said.
The U.S. State Department said the raids were "inconsistent with the bilateral cooperation we have had over many years" and urged Egyptian authorities to immediately halt "harassment" of non-governmental organisation staff.
State Department spokeswoman Victoria Nuland indicated to a news briefing that military aid could be difficult to push through Congress if the situation did not improve.
"We do have a number of new reporting and transparency requirements on funding to Egypt that we have to make to Congress," Nuland said. "The Egyptian government is well aware of that and it certainly needs to be aware of that in the context of how quickly this issue gets resolved."
Nuland said U.S. officials had been in touch with Egyptian Prime Minister Kamal al-Ganzouri and with Egypt's ambassador to Washington to underscore Washington's concern.
Germany's Foreign Ministry said it would summon Egypt's ambassador to Berlin on Friday after the raid targeted the German-based Konrad Adenauer Foundation, which is close to Chancellor Angela Merkel's Christian Democrats.
Civil society groups, a driving force behind the protests that toppled President Hosni Mubarak in February, have become increasingly vocal in criticising what they call the army's heavy-handed tactics in dealing with street unrest.
"This is a campaign the military council has launched to defame and stigmatise activists, rights groups and the various forces that have participated in the making of the January 25 revolution," said 27 civil society groups in a joint statement.
The groups added that such a campaign was "unprecedented even in the era of Mubarak and aimed to cover the failures of the military council in its management of the transitional period."
The ruling generals have pledged to stand aside by mid-2012 but many democracy activists say the military is keen to preserve its privileges and broad business interests.
One analyst said the crackdown on civil society groups was an attempt to stymie the protest movement.
"Civil society groups and the media are the two pillars of a successful revolution, because they are radical in their demands. The military council launches intermittent attacks to contain them," said analyst and researcher Yasser Abdel Aziz.
The U.S. State Department comments followed stinging criticism by U.S. Secretary of State Hillary Clinton over the "systematic degradation" of women during protests in Cairo this month in which 17 people were killed.
Images of troops beating demonstrators as they lay on the ground brought thousands of Egyptians onto the streets in protest. The harsh treatment of women protesters attracted particular attention.
The National Democratic Institute (NDI)said in an e-mailed statement that the raid took place on its offices in Cairo, Alexandria and Assiut, from where police confiscated equipment and documents.
"Cracking down on organisations whose sole purpose is to support the democratic process during Egypt's historic transition sends a disturbing signal," NDI President Kenneth Wollack was quoted as saying.
One person working at NDI, who gave her name as Rawda, said: "They are grabbing all the papers and laptops."
A Reuters television reporter who approached the offices of the International Republican Institute (IRI) in central Cairo found the doors sealed shut with wax and saw several police vehicles driving away from the area.
The NDI and IRI, which are loosely associated with the U.S. Democratic and Republican political parties and receive U.S. government funding, say they take a neutral political stance, fostering democracy in Egypt by training members of nascent parties in democratic processes.
Other groups that were raided included U.S.-based Freedom House and local groups set up to defend judicial independence, individual freedoms and democracy, according to the Egyptian Organisation for Human Rights.
"This looks like a campaign against human rights defenders," said prominent Egyptian rights activist Negad al-Borai. He said similar campaigns happened during Mubarak's three-decade rule.
"For this to happen after what we call the 'revolution', I am astonished."
Egypt's military has vowed to investigate how pro-democracy and rights organisations are funded and has said repeatedly it will not tolerate foreign interference in the country's affairs.
Egyptian presidential hopeful and former U.N. nuclear watchdog head Mohamed ElBaradei said: "Human rights organisations are the icon of freedom ... Everyone will be watching closely any illegal attempts to distort them. The revolution will prevail." (Additional reporting by Yasmine Saleh and Patrick Werr; Christian Ruettger in Berlin; and Andrew Quinn in Washington; Writing by Tom Pfeiffer; Editing by Myra MacDonald)