By Silvia Ognibene

FLORENCE, Italy (Reuters) - Violent clashes broke out this week between police and the Chinese community in a suburb of Prato, near Florence, in central Italy, home to one of the largest concentrations of Chinese-run industry in Europe.

Tensions had been rising in the town, Italy's textile capital, where people began emigrating from China in the mid-1990s. Some 50,000 Chinese work in the area, making clothes and handbags with the prized "Made in Italy" label.

Many of the area's textile businesses depend on the labor of illegal immigrants, ignoring safety rules and evading taxes. The area is also the focus of an investigation into alleged illicit transfers of some 4.5 billion euros ($5.01 billion) to China from Italy between 2006 and 2010.

The trouble in Prato began on Wednesday, when state health officials, who stepped up checks after seven people died in a fire at a garment workshop in 2013, went to inspect a factory.

The owner reacted angrily after an inspector noted minor violations of health and safety rules, shoving the inspector and the police accompanying him, according to a police source.

Chinese workers then barricaded themselves inside the factory, and hundreds more gathered outside. They threw stones and bottles at the police carrying truncheons and shields sent in to disperse the crowd. Two Chinese citizens and a policeman were injured.

Regional President Enrico Rossi vowed to tackle crime in the area, where he said half of all economic activity is illegal, 1 billion euros in taxes go unpaid every year, and money is laundered through international transfers. He said on Friday he had discussed the Prato incident with Foreign Minister Paolo Gentiloni.

"The situation is unacceptable," Rossi told Reuters. "We need the Chinese community to respect the law and integrate. We cannot have 'free zones'. We will keep up inspections to clean up this immense production system."

"CITY OF THE WHITE DEER"

Chinese officials in Florence went to the site of the clashes and Chinese Foreign Ministry spokesman Hong Lei told a news conference on Friday that the situation was under control.

China had asked Italy "to enforce the law in a civilized way, conduct fair investigation and protect the security and lawful rights and interests of Chinese citizens in Italy".

Hong also advised Chinese people in Italy to "defend their rights and interests in a law-abiding and rational way", his ministry said on its website.

In the aftermath of Wednesday's violence, the factory owner and a worker were arrested on suspicion of causing injury and resisting public officials.

Protesters gathered outside the court that confirmed the arrest order, saying public officials used excessive force when inspecting the factories.

"We want justice," said a protester who said his parents had come from China and gave his name only as Luca.Separately, Prato prosecutors have been investigating a Chinese gang suspected of what police have called racially motivated violence against other non-Italians, mainly from north-west Africa.

Police said they had confiscated clubs and iron bars from the group, which calls itself the "City of the White Deer", whose members allegedly organized aggressive patrols to find North Africans whom they accused of stealing.

An investigative source said the gang had no connection to Wednesday's clash at the factory. Seven people were investigated in the investigation, which began in 2015, but were not arrested.

($1 = 0.8974 euros)

(Writing by Isla Binnie; Editing by Kevin Liffey, Larry King)