WASHINGTON/SALT LAKE CITY (Reuters) - The Justice Department sued two polygamist-dominated towns on the Utah-Arizona border on Thursday, citing religious discrimination and saying they had operated for two decades as an arm of a breakaway Mormon sect. Most of the more than 8,800 residents of the twin towns of Colorado City, Arizona, and Hildale, Utah, are members of Jeffs' Fundamentalist Church of Jesus Christ of Latter Day Saints, which experts estimate has 10,000 followers in North America. Deputies also failed to arrest sect members who committed crimes against non-members such as destroying their crops or trespassing, the suit added. "City governments and their police departments may not favor one religious group over another and may not discriminate against individuals because of their religious affiliation," Thomas Perez, assistant attorney general for the Justice Department's Civil Rights Division, said in a statement. Additionally, the lawsuit accused the cities of refusing to issue building permits to non-sect members, and said the utilities delayed water and electric service to non-members. The lawsuit seeks unspecified damages for discrimination victims, fines against both towns and court orders barring harassment of non-FLDS members. Phoenix-based lawyer Jeff Matura, who represents Colorado City, and Salt Lake City-based attorney Peter Stirba, who represents Hildale, said the cities denied the allegations in the suit and that they were not new. Matura called the move a "heavy-handed" federal attempt to accomplish what Utah and Arizona officials had been unable to do for decades: dismantle the FLDS communities for their religious practice of polygamy. He said Justice Department officials approached the towns more than six months ago, not to discuss the allegations in the lawsuit, but essentially seeking to dismantle and rebuild the city governments and police department. "We've been talking to them trying to avoid a lawsuit," Matura said. They literally wanted to put the towns under receivership. ... We declined. He said that raids on the two communities dating back to the 1930s by state and federal authorities in both states had been unsuccessful and that most legal actions brought against city officials in the past had also failed. The sect, which Jeffs still leads despite his 2011 child sexual assault conviction, practices polygamy and believes plural marriage brings exaltation in heaven. Jeffs is revered by followers as a prophet who communicates directly with God. The mainstream Mormon church, which has no affiliation with the FLDS, abandoned polygamy in 1890 and excommunicates members engaged in the practice. At this point, there has been no adjudication by any court or in any other proceeding that found there had ever been any discriminatory behavior. The attorneys general in Arizona and Utah welcomed the federal move, with Utah's top prosecutor, Mark Shurtleff, saying it would finally establish the rule of law in the twin towns. "We have offered our full cooperation and collaboration with the Department of Justice to aggressively investigate and address these complaints," he said. Both Arizona and Utah tried unsuccessfully to pass legislation last year to block the sect from controlling law enforcement in the towns. Two weeks ago, Arizona Attorney General Tom Horne announced his office would provide $420,000 to the Mohave County Sheriff office for overtime pay so officers could patrol Colorado City 16 hours a day. Reporting By Lily Kuo and Jennifer Dobner; Writing by Cynthia Johnston; Editing by Peter Cooney