By Colin Packham

SYDNEY (Reuters) - An Australian city's bid to highlight the plight of indigenous people by boycotting Australia Day celebrations on Thursday has ignited a rancorous dispute, raised fears of violence and could backfire on reforms aimed at engendering reconciliation.

Leaders in the western city of Fremantle have canceled the usual fireworks and other celebrations to mark Australia Day, the anniversary of the arrival in 1788 of the first British fleet, moving the party instead to Saturday.

For many indigenous Aborigines, who trace their lineage on the island continent back 50,000 years, Jan. 26 is "Invasion Day", the anniversary of the beginning of British colonization of their lands and their brutal subjugation.

"We have to acknowledge that Australia has a dark past," the mayor of Fremantle, Brad Pettitt, told Reuters.

"The 26th is not just a day for celebration, it is a day that is difficult and conflicted for many people."

Fremantle's gesture has whipped up a storm of debate at a time that right-wing nationalist politics has been making a comeback, reflecting similar trends in the United States and Europe.

Reclaim Australia, the country's most prominent "alt-right" group, has planned a protest march in Fremantle on Jan. 26.

Group members have been involved in violent protests and Fremantle has engaged a security team to access the situation.

Pauline Hanson, whose One Nation party first gained international notoriety in the late 1990s with its appeal to white nationalism and outright racism, criticized the Fremantle decision.

"I'm totally against moving the celebrations. Australia Day is as it is," Hanson told Reuters.

"If we have problems and issues out there, let's debate those issues now. Changing the date is not going to change it," said Hanson, whose party has made a comeback over the past year, fueled by fear of Islamist militancy and worry about immigration.

'REACTIONARY LURCH'

Prime Minister Malcolm Turnbull, increasingly hostage to the right wing of his coalition government, which holds a tiny majority in parliament, has been drawn into the row.

The federal government has threatened to revoke Fremantle's right to hold citizenship ceremonies unless it goes ahead with celebrations on Thursday.

Pettitt said the issue of rights for Aboriginal people should not be drawn into the fray of party politics.

"There has been a reactionary lurch to the right and some important issues including the advancement of indigenous Australian rights are being lost in the left versus right of Australian politics," he said.

Outwardly easy-going Australia has a troubling race relations record.

A White Australia Policy, which was only dismantled in the late 1960s, favored European migrants over non-whites. Aborigines were until then administered under flora and fauna laws.

The country's 700,000 or so indigenous people track near the bottom of its 23 million citizens in almost every economic and social indicator.

A referendum to recognize Aborigines in the constitution has been on hold for years but a change to recognize them as the first Australians is planned this year.

But some activists worry bitterness over the Fremantle row could sap support for the constitutional change, which would have to be approved in a compulsory national vote.

"People aren’t sufficiently aware of the issues and ideological divide may see some people oppose a constitutional change, but we need it, we need better housing and better services," said Rodney Dillon, indigenous campaigner at Amnesty International.

"Change is going to happen, it may not happen overnight but it will happen."

(Reporting by Colin Packham; Editing by Robert Birsel)