By Tom Perry and Asma Alsharif

CAIRO, June 18 (Reuters) - Egypt's tourism minister tendered his resignation on Tuesday over President Mohamed Mursi's decision to appoint as governor of Luxor a member of a hardline Islamist group blamed for slaughtering 58 tourists there in 1997.

Prime Minister Hisham Kandil did not accept the resignation of Tourism Minister Hisham Zaazou, who remains in the post for now. However, the move pointed to a split in government over an appointment that one critic called "the last nail in the coffin" of the tourism industry.

Mursi appointed Adel Mohamed al-Khayat, a member of al-Gamaa al-Islamiya, as Luxor governor this week, a move seen as a sign of a deepening political alliance between the once-armed group and the head of the state's more mainstream Muslim Brotherhood.

Khayat told Reuters on Tuesday he had no role in the group's militant past including the 1997 massacre at the temple of Hatshepsut in Luxor's Valley of the Queens. He promised to welcome tourists and keep them safe.

But Zaazou, an independent technocrat, added his voice to critics who say Mursi's choice deals another blow to an industry already weakened by the unrest of the last two years. He said it was a move with "dire consequences."

"The minister is committed to his position on resigning, all the while the governor of Luxor remains in his position," the state news agency reported, quoting his spokeswoman.

Sixty-two people died, all but four of them foreigners, in the 1997 attack designed to cut off tourist revenue to the government of then-President Hosni Mubarak. Al-Gamaa al-Islamiya renounced violence more than a decade ago and has moved into the political mainstream since Mubarak was toppled.

In a telephone interview with Reuters, 60-year-old new governor Khayat insisted he would work to develop tourism:

"Luxor is open to all tourists from all over the world," he said. "They are my main concern and are looked after by the state, which is responsible for their security and their wellbeing."

Khayat said he had joined the group in 1975, when it first emerged, but denied any role in militancy. He said his activism was restricted to taking part in university seminars, and he had worked as a civil servant at the housing ministry since 1986.

'BEST IMAGE'

The dominance of Islamists has raised concerns among their opponents about the fate of Egypt's pharaonic temples, deemed un-Islamic by hardliners. But Khayat said he was proud of the country's ancient heritage.

"God willing, the temples will remain as they are and we will work on cleaning them, protecting them and lighting them so that they are in the best image and no one will be able to harm them," he said. "They are great monuments."

Asked about his views on alcohol consumption, an important issue for the local economy as it seeks to draw in visitors, he said: "I have no intentions that would harm tourism."

Tourism workers, remembering the heavy blow to their livelihood from the Luxor massacre, protested outside the governor's office for a second day, though Khayat has yet to arrive there. The industry has been hit by falling visitor numbers in the two years since the revolution.

"His extremist background will surely affect tourism," Wael Ibrahim, head of the Luxor tour guide association, told Reuters by phone. "International newspapers wrote about this ... For sure this will lower tourism levels significantly."

Sarwat Agami, head of another Luxor industry association, said the appointment had "hammered the last nail in the coffin of tourism in the historic tourist city".

Al-Gamaa al-Islamiya was implicated in the 1981 assassination of President Anwar Sadat and waged an armed insurrection against the state in the 1990s. It had ties to al Qaeda, and its spiritual leader is jailed in the United States over a plot to blow up the World Trade Center.

The Muslim Brotherhood has described him as an "excellent choice", saying al-Gamaa al-Islamiya's community ties will help improve law and order in the area. (Editing by Mark Trevelyan, Alison Williams and Lisa Shumaker)