* Google employee says search engine project is genuine
* "Very unlikely" to be approved this year - official source
* Comes as Google ramping up other China projects (Updates with comments from Amnesty International and report on news-aggregation app)
By Cate Cadell and Joseph Menn
BEIJING/SAN FRANCISCO, Aug 2 (Reuters) - Alphabet Inc's Google plans to launch a version of its search engine in China that will block some websites and search terms, two sources said, in a move that could mark its return to a market it abandoned eight years ago on censorship concerns.
The plan, which was criticized by human rights advocates, comes as China has stepped up scrutiny of business dealings involving U.S. tech firms including Facebook Inc, Apple Inc and Qualcomm Inc amid intensifying trade tensions between Beijing and Washington.
Google, which quit China's search engine market in 2010, has been actively seeking ways to re-enter China where many of its products are blocked by regulators.
The Intercept earlier reported Google's China plans on Wednesday, citing internal Google documents and people familiar with the plans.
The project is code named "Dragonfly" and has been underway since the spring of 2017, the news website said.
Progress on the project picked up after a December meeting between Google's Chief Executive Sundar Pichai and a top Chinese government official, it added.
Search terms about human rights, democracy, religion and peaceful protests will be among the words blacklisted in the search engine app, which The Intercept said had already been demonstrated to the Chinese government.
The finalised version could be launched in the next six to nine months, pending approval from Chinese officials, it added.
Chinese state-owned Securities Times, however, said reports of the return of Google's search engine to China were not true, citing information from "relevant departments".
But a Google employee familiar with the censored version of the search engine confirmed to Reuters that the project was alive and genuine.
On an internal message board, the employee wrote: "In my opinion, it is just as bad as the leak article mentions."
The worker, who declined to be named, said that he had seen slides on the effort and that many executives at the vice president level were aware of it. He said he had transferred out of his unit to avoid being involved.
Separately, a Chinese official with knowledge of the plans said that Google has been in contact with authorities at the Cyberspace Administration of China (CAC) about a modified search program.
The official, who declined to be named, said the project does not currently have approval from authorities and that it is "very unlikely" such a project would be made available this year.
A separate report, by technology news site The Information on Wednesday, said that Google was developing a news-aggregation app for use in China that would comply with the country's censorship laws.
Google declined to comment on the accounts and the CAC did not immediately respond to requests for comment from Reuters on Thursday.
A day earlier, the search giant also declined to comment on specifics mentioned in The Intercept report, but noted that it has launched a number of mobile apps in China and works with local developers as part of maintaining its domestic presence.
But the report pummelled shares of U.S.-listed Baidu , which dominates China's search engine market. Baidu shares fell 7.7 percent on Wednesday, despite posting better than expected quarterly results.
Human rights group Amnesty International said it was calling on Google to change course.
"Google would be setting a chilling precedent and handing the Chinese government a victory," its China researcher, Patrick Poon, said in an e-mailed statement.
"This also raises serious questions as to what safeguards Google is putting in place to protect users' privacy," he said.
Google's main search platform has been blocked in China since 2010, but it has been attempting to make new inroads into China.
In January, the search engine joined an investment in Chinese live-stream mobile game platform Chushou, and earlier this month, launched an artificial intelligence (AI) game on Tencent Holdings Ltd's social media app WeChat.
Facebook's website is also banned in China but the company has also signalled its interest to enter the market.
Reports of Google's possible re-entry spurred a strong reaction on Chinese social media outlets on Wednesday evening, including debates over the merits of a censored search engine versus accessing the U.S. version through illegal virtual private networks.
"Let's carry on jumping the Firewall," said one anonymous poster. "I'd rather not have it than use a castrated version." (Additional Reporting by Brenda Goh in SHANGHAI and Paresh Dave in SAN FRANCISCO, Editing by Sherry Jacob-Phillips and Muralikumar Anantharaman)