(Reuters) - Hong Kong holds a controversial "referendum" on democracy on Friday, a prelude to an escalating campaign of dissent that could shut down the former British colony's financial district and further anger China's Communist Party leaders.

An affluent city of seven million that returned to Chinese rule in 1997, Hong Kong's longstanding push for full democracy is reaching what could be boiling point with tens of thousands expected to vote in the unofficial referendum for full democracy from Friday until Sunday.

While Beijing has allowed Hong Kong to go ahead with a popular vote for the city's top leader in 2017, the most far-reaching experiment in democracy in China since the Communist takeover in 1949, senior Chinese officials have ruled out allowing the public to nominate candidates.

Instead, Beijing insists a small committee of largely pro-Beijing loyalists choose who gets on the ballot, which would effectively render the ability to vote meaningless.

One of the founders of the Occupy Central protest movement, academic Benny Tai, hopes that its June 20-22 referendum will draw up to 300,000 people to strengthen the legitimacy of the group's demands for a fair and representative election in 2017 that would include opposition democrats.

But a cyber-attack this week crippled the online voting system, meaning the organizers may have to rely on the results from 15 voting stations to be set up on Sunday instead if it is not fixed by then.

"As I see it, we are under such serious attack it exactly shows that Beijing is taking us seriously," law professor Tai said.

Chinese and Hong Kong officials, editorials in pro-Beijing newspapers and businessmen have in recent weeks strongly criticized Occupy Central, which plans mass protests in the Central business district this summer, saying it will harm Hong Kong.

"We are using the civil referendum to tell Beijing what is our baseline, that is true democracy must be something allowing electors to have genuine choices," Tai said.

Hong Kong returned to China with wide-ranging autonomy under the formula of "one country, two systems" - along with an undated promise of full democracy, an issue never broached by the British until the dying days of 150 years of colonial rule.

The summer protests could see more activist groups spill on to the streets as political tensions rise. Already last week, the city's normally peaceful protests took on a violent edge.

On Friday, a group of radical protesters tried storming their way into the Legislative Council, smashing glass and ramming doors with steel barricades and bamboo poles.

Tai stressed his movement hadn't yet decided on an exact date to launch the street protests, though the results of the referendum would have a strong bearing.

"IT ONLY HURTS HONG KONG"

Rita Fan, a senior Hong Kong delegate to China's parliament, the National People's Congress, said the Occupy protests would hurt Hong Kong and stoke Beijing's mistrust of the city.

"I understand from listening to various people who are officials from the mainland that they do not wish to see this happen, but they are not afraid if it happens," Fan told Reuters.

"It only hurts Hong Kong... If the Hong Kong police force is unable to contain the situation then the international ratings agencies may consider that Hong Kong is politically not stable and that may affect our rating."

A Hong Kong police source told Reuters that mainland law enforcement officials had stepped up liaison work with police over the past year, forming an informal working group on how to tackle the protests.

A police spokesman gave no immediate response, but stressed the force could deal with any "internal security incidents".

Banks in Central have been holding emergency drills and contingency planning for possible disruptions to operations.

Several current and retired Chinese officials have warned in recent months, however, that China is prepared to unleash the People's Liberation Army (PLA) garrison to handle riots in Hong Kong – a prospect dismissed by some analysts.

"Disorder that is too intense for the Hong Kong police to handle could justify deployment of the PLA to restore stability," wrote Hong Kong-based risk consultancy, Steve Vickers and Associates, in a report. "Such a scenario is unlikely, but would present a major threat to businesses and to Hong Kong's autonomy and reputation."

Retired Chinese diplomat Zhou Nan said in June that "we could not allow Hong Kong to turn into a base to subvert China's socialist regime under the guise of democracy".

Hong Kong police have staged drills to prepare for possible civil unrest, including mass mobilization of officers at short notice, according to two law enforcement sources.

The PLA remains a relatively low-key presence at bases across the territory it inherited from the British but a foreign envoy in the city said the PLA had this year made improvements to facilities and boosted the quality of troops.

A recent visit to major PLA barracks close to China's border found no unusual activity.

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