Britain rejects London mayor's 'Boris Island' airport plan

* More runways needed to cope with growing traffic

* Commission said east London project "too risky"

* Move (NasdaqGS: MOVE - news) prolongs decades of uncertainty over airport strategy (Adds comment, context)

By Sarah Young and William James

LONDON, Sept 2 (Reuters) - A plan to build a major new airport to the east of London was rejected by a government-appointed commission on Tuesday, dealing a blow to its high-profile backer, the city's mayor Boris Johnson.

The Airports Commission said having dropped the idea of building a costly new airport in the Thames Estuary, nicknamed Boris Island, it would now decide by next year whether to expand Heathrow airport to the west of London or Gatwick to the south.

With London's airports near the limit of their capacity, business groups say more runways are needed to handle traffic from fast-growing emerging economies and fear inaction could deter international investors and curb growth.

But the capital's skies are already crowded and the prospect of more noise and pollution has made it a toxic political issue eight months before a national election.

A decision on where to locate new runways has already been delayed for years because of u-turns by successive governments.

The Airports Commission said the Thames Estuary idea had not made the shortlist as it was too expensive and complicated - at up to 112 billion pounds ($186 billion), it would cost around five times as much as the other three short-listed options.

"We think it's too risky. The logistical challenges of shifting an airport 70 miles across London are immense," Howard Davies, chair of the commission, told the BBC. "We simply think that there's a strong chance you would never get it built."

Heathrow, which is Britain's busiest airport by passenger traffic and Europe's busiest, is already running at 98 percent full. The airport says this means it is falling behind rival European hubs.

DISMAYED

Johnson, who is seen as a potential successor to Prime Minister David Cameron, said he was dismayed by the move and would continue to fight for the project - potentially prolonging the uncertainty over airport strategy.

"In one myopic stroke the Airports Commission has set the debate back by half a century," he said.

Johnson confirmed last week he would try to run for parliament next year in a west London constituency, drawing attention to his long-held opposition to an expansion of Heathrow.

Manufacturing lobby group the EEF backed the decision not to shortlist the island project and said it was important that the decision-making process was transparent and not derailed by any change in government after the election.

The airline industry also supported the commission's move.

"Britain needs additional runway capacity in the South East (HKSE: 0726.HK - news) of England, but not at any price," said Nathan Stower, Chief Executive of the British Air Transport Association. "The proposals must be cost effective and offer value for money." (1 US dollar = 0.6031 British pound) (Editing by Mark Potter and Tom Pfeiffer)