* Nebraska officials worry pipeline threatens water * State Dept expected to issue permit by year-end * Montana governor supports Keystone XL By Timothy Gardner WASHINGTON, Aug 31 (Reuters) - Nebraska's governor has asked President Barack Obama to block a massive Canada-to-Texas oil pipeline saying it threatens one of the most important sources of fresh water in the central United States. Governor Dave Heineman, leader of the state known for its ranching and agriculture, wrote Obama on Wednesday arguing the proposed path of the Keystone XL pipeline, that will stretch from Alberta to the Gulf Coast, could damage the Ogallala Aquifer. Heineman said TransCanada Corp's Keystone XL pipeline poses risks to the aquifer he calls the "lifeblood" to state's $17 billion agriculture industry. "I am concerned that the proposed pipeline will potentially have detrimental effects on this valuable natural resource and Nebraska's economy," the Republican said in a letter to Obama and Secretary of State Hillary Clinton and made public to the media. His opposition lends support to a growing environmental movement against the pipeline, in which hundreds of protesters have been arrested in front of the White House. But unlike most of those protesters, Heineman signaled he could support the line if its route avoided the aquifer. The Ogallala is a main source of water for farmlands in the Midwest. It stretches from Texas to South Dakota and about 65 percent of it lies underneath Nebraska. The State Department is expected to decide at the end of the year whether to issue a presidential permit for the $7 billion pipeline that would bring more than 500,000 barrels per day of crude from Canada's oil sands. Momentum for Keystone picked up last week after the department said it would have limited impact on the environment. It said in a review last week that an oil spill from the line would affect a limited area in Nebraska's Sand Hills region, which is over the aquifer. Nebraska Senator Mike Johanns echoed Heineman's request. "The proposed route is the wrong route. It's clear to me, after traveling throughout the state, that most Nebraskans agree a better route is needed," Johanns said in a release. Nearly 700 opponents of the pipeline have been arrested in front of the White House in an action set to last until the weekend. Most of those opponents, who include actresses Margot Kidder and Daryl Hannah, want the line blocked no matter what route it takes. It is unclear what opponents can do to stop the project, or change its route. Backers of the line say it would create thousands of jobs and reduce U.S. dependence on oil exporters that are unfriendly to Washington. TransCanada, which hopes to have the pipeline built by 2013, said alternative routes around the aquifer would be worse for the environment. "The proposed route is the shortest and would disturb the least amount of land and water bodies resulting in reduced environmental impacts," spokesman Terry Cunha said. Montana's Governor Brian Schweitzer has supported the Keystone project, in part because the line could help relieve a buildup of oil from his state as drilling techniques open access to new supplies. The State Department will hold meetings in coming months in the states affected as it considers whether the pipeline is in the national interest.