LONDON, Aug 14 (Reuters) - China has resubmitted plans to build a new large embassy in London, a contested project that could test how the new Labour government handles relations with the world's second largest economy after years of diplomatic tensions and disputes.

Beijing sent a new planning application to Tower Hamlets council to build the embassy near the Tower of London last month, almost two weeks after the new government took power on July 5, according to documents on the council's website.

The planning documents said the council's decision to reject the proposals in December 2022 on security grounds and the impact on residents was "without merit" and had "no basis in planning policy".

China missed a deadline last year to appeal against the decision when there were tensions with the then-Conservative Party-led government over suspicions about Chinese cyber-espionage and human rights. But China always had the option to resubmit a fresh application.

Although the planning application will initially be handled by Tower Hamlets council, the national government could get involved if the proposal is rejected again and China appeals.

The council said that its planning team was reviewing the application but that it is too early to say when a decision will be made.

The Chinese embassy in London said its "resubmitted plan and design proposal for the new embassy building fully takes into account the requirements of the UK's building planning policies and the views of all relevant parties," in a statement.

China has accused Britain of exaggerating allegations about Chinese spies and cyberattacks.

Labour under Prime Minister Keir Starmer has prioritised strengthening post-Brexit relations with the European Union, but has said it will carry out an audit of the bilateral relationship with China to understand and respond to the challenges and opportunities Beijing poses.

China first announced plans to build a new London embassy in 2018 in keeping with its increasing diplomatic clout, buying land on the former site of the Royal Mint - the maker of British coins - for about 250 million pounds ($318 million).

The embassy would be China's biggest diplomatic legation in Europe and almost twice the size of its one in Washington.

This led some British politicians and security officials to warn that a bigger embassy and more Chinese diplomats could make it easier to increase the number of spies in the country, officials told Reuters.

Chinese officials in return have expressed frustration to the British government over its failure to help secure planning permission at official-level meetings, people involved in those talks have said.

Earlier this year, British and Chinese officials held at least one meeting to discuss the dispute, the people said.

Photo from Reuters