Egypt's Islamic authority asserts role, clashes with Brotherhood CAIRO (Reuters) - Egypt's leading Islamic authority Al-Azhar said on Thursday its clerics must be consulted on a law allowing the state to issue Islamic bonds, setting it at odds with the Muslim Brotherhood which drove the legislation through parliament last week. It marks the first time Al-Azhar, a thousand-year-old seat of Islamic learning, has said its Senior Scholars Authority should be consulted on issues pertaining to Islamic law as set out in Egypt's new, Islamist-tinged constitution. Al-Azhar's intervention could set a precedent for clerical oversight of other affairs of state. The Salafi Nour Party has said Al-Azhar must also approve an agreement Egypt is seeking with the International Monetary Fund because it includes a loan upon which Egypt will pay interest. The Islamic bond, or sukuk law, will allow Egypt to issue debt compliant with Islamic principles, allowing the state to tap a new area of finance as President Mohamed Mursi's administration grapples with an unaffordable budget deficit. The sukuk law has been a source of friction between the Brotherhood, whose Freedom and Justice Party leads the upper house of parliament, and more hardline Islamists who say it should first have been approved by Al-Azhar. At a meeting on Thursday, Al-Azhar's Islamic Research Institute chaired by Grand Sheikh Ahmed al-Tayeb said it shared the view that the law should have been referred to the Senior Scholars Authority, in line with the new constitution. "The Institute is of the opinion that the draft should have been referred to the Senior Scholars Authority for discussion and so it could give its legal opinion, in line with its duty," it said in a statement. It criticized the law approved by parliament last week, saying it empowered the prime minister to form the body entrusted with issuing the Islamic bonds. It said this "disregarded the Senior Scholars Authority of the noble Azhar." The Nour Party, a hardline Salafi group, had demanded the upper house of parliament refer the law to Al-Azhar before MPs voted on it. But the FJP used its majority to pass the law despite a fierce row with Nour Party members during the session. The law must now be ratified by Mursi. Abdullah Badran, head of the Nour Party's parliamentary bloc, said in a phone interview the group was now urging Mursi not to ratify the law without first presenting it to the Senior Scholars Authority for review. The Nour Party believes Al-Azhar must sign off on a deal Egypt is seeking with the IMF because it includes a $4.8 billion loan on which Egypt will pay interest. The payment of interest is deemed as impermissible in Islam. Al-Azhar's role in affairs of state is embedded in article four of the new constitution. It says the Senior Scholars Authority must be consulted on all matters pertaining to sharia. It does not, however, say whether Al-Azhar's view is binding on the government, nor does it make clear the scope of Al-Azhar's role - ambiguity which critics say will cause future political and legal conflict. Editing by Rosalind Russell