TBILISI (Reuters) - Spurred on by a reclusive billionaire founder, Georgia's ruling party has triggered a showdown with young, anti-Moscow protesters that is growing more tense and violent by the day.

Police fired water cannon, tear gas and stun grenades on Tuesday night to disperse thousands of people who have been protesting for weeks against a "foreign agents" law. Critics say the law is modelled on legislation that the Kremlin has used to crack down on Russia's opposition.

The government says the bill, which would designate NGOs as foreign agents if they get 20% or more of their money from abroad, is needed to ensure that foreign funding is transparent.

The standoff is part of a wider struggle that could determine whether Georgia, a country of 3.7 million people that has seen turmoil, war and revolution since the collapse of the Soviet Union, moves closer towards Europe or back under Moscow's influence.

The scale of protest is no surprise: similar demonstrations broke out last year when the government first attempted to pass the same legislation, forcing it to back down.

To retreat again now, with elections due in October, would be a humiliation for the ruling Georgian Dream party. In a rare speech on Monday, its businessman founder Bidzina Ivanishvili laid out his view of the stakes.

Ivanishvili said a "Global Party of War" in the West had pushed Georgia into conflict with Russia in 2008, when it was crushed by Moscow in a five-day war, and done the same with Ukraine in 2014 - when Russia seized Crimea - and again in 2022, when President Vladimir Putin launched his full-scale invasion of Ukraine.

His message, essentially, was that Georgia's opposition was acting as a direct agent of the West and would draw the country back into war and allow it to be used as "cannon fodder" unless Georgian Dream acted to stop it in its tracks.

Natalie Sabanadze, a former Georgian diplomat now with London's Chatham House think tank, said the speech was a blend of "paranoid anti-Westernism", populism and conspiracy theories but the narrative of preserving peace with Moscow was one that had worked for Ivanishvili before.

"People are really afraid of Russian aggression, they remember 2008. Now what he is doing is saying there are these imaginary forces out there - Western forces - that are trying to engage us and open a second front. And we are withstanding it. This is a reaction not to a Russian threat, but to a Western liberal threat. This becomes part of this anti-liberal rhetoric they (Georgian Dream) are pushing."

Michael Emerson, an analyst at the Centre for European Policy Studies in Brussels, said there were "stupendous contradictions" between Ivanishvili's tirade against the West and his insistence in the same speech that Georgia would be a member of the European Union by 2030.

"Ivanishvili is playing electoral politics, in view of a crucial parliamentary election this coming autumn. He pretends to be aiming at EU membership ... in order to confuse public opinion and to try and disarm his pro-European critics," he said.

The European Union has said the "foreign agent" bill will put at risk Georgia's EU membership hopes. Its foreign policy chief Josep Borrell said on Tuesday he strongly condemned the use of violence against peaceful demonstrators.

POLITICAL COMEBACK

Ivanishvili, who made his business fortune in Russia, denies accusations he is close to the Kremlin. Having served as prime minister in 2012-13, he announced in January 2021 that he had decided to quit politics completely. But critics have long insisted that he runs government policy from behind the scenes - an impression reinforced by his speech this week.

Ivanishvili told the crowd he had thought wrongly that his political mission was complete and would continue to fight for "full restoration of the sovereignty of Georgia", arguing that the time was right to get the "foreign agents" bill through.

In parliament, Georgian Dream has the numbers to get the bill past a fragmented opposition and to override a promised veto by President Salome Zourabichvili, who opposes it but has only ceremonial powers.

The real struggle will be on the streets.

"This is basically a Gen Z revolution of schoolkids and students. They learned English by watching YouTube, they are an incredibly connected and globalized generation. And they just don't get what's going on," Sabanadze said in a phone interview.

"This time Georgian Dream seems very determined. Backing down is very hard. But protesters are determined too. It's looking pretty dangerous," she added.

"My prediction is they will pass the law and the protests will continue and maybe intensify. The more brutal the police become, the greater the pushback from protesters."

Tina Khidasheli, a former Georgian defence minister who has joined the protests, said people were "united with the idea of freedom and Europe" and they would not be defeated.

"The problem is that the government is just prolonging the inevitable, and we might have serious problems meanwhile but at the end of the day people will go home with victory."

(Reporting by Felix Light in Tbilisi and Lucy Papachristou in London; Writing by Mark Trevelyan; Editing by Philippa Fletcher)

By Felix Light and Lucy Papachristou