MOSCOW - Russia should regulate the crypto market, not ban it, Finance Ministry official Ivan Chebeskov said on Tuesday, appearing to contradict the central bank, which last week proposed banning the use and mining of cryptocurrencies.

Chebeskov, director of the finance ministry's financial policy department, said the ministry had its own ideas about how to regulate the crypto market, while a lawmaker went one step further, reminding the central bank that the power to create legislation lies with parliament.

Russia has argued for years against cryptocurrencies, saying they could be used in money laundering or to finance terrorism. The central bank last week said financial stability, citizens' wellbeing and its monetary policy sovereignty were all under threat. 

"The world has become very virtualised and I don't think we can allow ourselves to just take a high-tech industry and ban it," Chebeskov said at business daily RBC's crypto asset conference.

"We don't want these technologies to leave the country, they should absolutely be developed inside the country," Chebeskov added.

Andrei Lugovoy, a pro-Kremlin lawmaker, who heads the State Duma's working group on crypto, said banning cryptocurrencies was the central bank's initiative alone.

"There are no bans in our proposed amendments - it is not for the central bank to decide what to allow and what to ban," he said.

Britain accuses Lugovoy of carrying out the assassination of ex-KGB officer Alexander Litvinenko, who was poisoned in London in 2006. Lugovoy has always denied involvement. 

Fellow lawmaker Anatoly Aksakov poured cold water on the central bank's proposal that cryptocurrency mining be banned, describing it as a growing business sector employing hundreds of thousands of people in Russia.

Bitcoin and other cryptocurrencies are "mined" by powerful computers that compete against others hooked up to a global network to solve complex mathematical puzzles, a process that requires heavy use of electricity.

Aksakov said there were obvious benefits from allowing crypto mining and suggested imposing higher electricity tariffs on miners and limiting the regions where they could operate.

Bitcoin was down 0.8% at $36,423 in Tuesday trading. Ether, the world's second-largest cryptocurrency, was down 1% at $2,420.

The central bank said it would continue to defend its tough stance.

(Reporting by Elena Fabrichnaya; Writing by Alexander Marrow; Editing by Katya Golubkova and Bernadette Baum) ((alexander.marrow@thomsonreuters.com;))