MEXICO CITY, Nov 21 (Reuters) - A proposed increase in

mining royalties in Mexico could block more than $6.9 billion in

investments over the next two years, the industry's local

chamber said on Thursday.

As part of its budget proposal published last week, the

Mexican government proposed raising mining royalties under the

argument that metal prices have risen in recent years.

The government plans to bump up two separate royalties from

7.5% to 8.5% and 0.5% to 1.0%, respectively.

"The measure... would have an impact on a sector that

has already seen its contributions and investments reduced due

to paralyzation (of the sector)," the chamber said in a

statement responding to questions sent by Reuters.

The proposed hike comes after Congress last year

shortened concessions from 50 years to 30 years and tightened

water-extraction permits. Another reform aimed at banning

open-pit mining remains in the legislature.

The royalty increase, "coupled with the lack of permits

and exploration restrictions in recent years, could inhibit more

than $6.9 billion that the mining sector could invest in new

projects in the next two years," the chamber told Reuters.

Mexico is the world's leading silver producer and a top

producer of copper and gold. The industry contributes around

2.5% to the nation's gross domestic product (GDP).

But an additional tax burden could make Mexico less

attractive compared to other major producers such as Chile, Peru

and Canada, the chamber said.

The group represents some of the nation's largest

miners, such as Grupo Mexico, Minera Autlan

, Industrias Penoles and Newmont's ( NEM )

Penasquito mine.