* Protesters say it's the Pyeongchang Games, not Pyongyang Games
* Ferry last crossed into S.Korean waters in 2002
* N.Korea orchestra will perform twice in South (Adds protester quote, details)
By Hyonhee Shin and Elaine Lies
SEOUL/MUKHO PORT, Feb 6 (Reuters) - A North Korean ferry arrived in South Korea on Tuesday carrying a 140-strong orchestra to perform during the Winter Olympics, taking advantage of a rare sanctions exemption from Seoul 16 years after its previous visit but greeted by angry protests.
The 9,700-tonne ferry, the Mangyongbong 92, was escorted into the eastern South Korean port of Mukho, where throngs of demonstrators were waiting. Some held large photos of the North's leader, Kim Jong Un, with black crosses drawn through them.
The ministry said it had decided to temporarily lift a ban on North Korean ships to "support a successful hosting of the Olympics", which begin on Friday. It is also a fresh sign of a thaw in inter-Korean relations after months of tensions over North Korea's nuclear and missile programmes.
Seoul banned all North Korean ships entering its ports and cut off most inter-Korean exchanges, including tourism, trade and aid, in 2010 in the wake of a torpedo attack on a South Korean navy warship that killed 46 sailors. North Korea denied involvement.
Dozens of riot police with shields kept order as the ferry berthed. Protesters also waved South Korean and U.S. flags while singing the South Korean national anthem. No unified Korea flags could be spotted in the crowd.
South and North Korea will march under a unified Korea flag at the opening of the Games while the two Koreas will also field a united women's ice hockey team.
"They come to South Korea to make fools of us by advertising our Pyeongchang Olympics as their Pyongyang Olympics," said one protester, a 67-year-old man waving a Korean flag who gave only his last name of Shin.
The art troupe from the North is led by star singer Hyun Song Wol and is scheduled to perform at Gangneung, near the Games venue of Pyeongchang, on Thursday and in Seoul on Sunday.
It will use the vessel for transportation and lodging, the Unification Ministry said. No one from the ferry could be seen leaving the vessel late on Tuesday as dark fell, while earlier, some were spotted on the deck waving at the crowds.
The Mangyongbong 92 last crossed into South Korean waters when it carried a North Korean cheer squad for the 2002 Asian Games in the port city of Busan.
Named after a mountain peak, the Mangyongbong 92 was given by a group of pro-Pyongyang Korean residents in Japan in 1992 to Kim Il Sung, the North's national founder and grandfather of current leader Kim Jong Un, to celebrate his 80th birthday, according to the Unification Ministry. It features dozens of cabins of different classes, including special rooms where Kim Jong Un's father and grandfather stayed, as well as a restaurant, a bar equipped with a karaoke machine, and a shop where guests can buy souvenirs and snacks, such as ice cream, video footage and images from the 2002 show.
It can carry 350 passengers, Seoul officials said.
The ethnic Koreans who donated the ferry had used it to travel between Japan and North Korea, sending money and other resources back to North.
However, Japan barred the ship from its waters in 2006 in response to a long-range missile test by the North, resulting in a sharp fall in trade, remittances and other exchanges.
The ferry had also been suspected by Japan and others of being used to smuggle parts for Pyongyang's illicit nuclear and missile programmes.
North Korea's state media has rejected the smuggling accusations as a plot to "justify the hostile policy" of the United States and its allies.
"The conservative media and persons claimed that the use of 'Mangyongbong-92' ... during the Olympic period falls foul of the 'independent sanctions' by the U.S. and South Korea," the official KCNA news agency said last month, when the two Koreas were holding talks on the North's participation in the Games.
"This represents the unpleasant and uneasy mind of the U.S. and the South Korean conservative forces displeased with the trend for the improvement of the north-south relations created after entering the new year," it said.
Reporting by Hyonhee Shin, Christine Kim in SEOUL, Elaine Lies in MUKHO PORT; Additional reporting by Hyunjoo Jin in GANGNEUNG; Editing by Paul Tait and Nick Macfie