NEW DELHI / MUMBAI - Thousands of state employees in the western Indian state of Maharashtra held protests on Friday, joining employees in other states who are demanding higher pension benefits.

After opposition-ruled states increased pension benefits, government employees in other states, particularly those ruled by Prime Minister Narendra Modi's party, including Haryana and Nagaland, began protesting to seek higher pensions.

Workers are pushing for the restoration of a pension plan discontinued about two decades ago.

In 2004, the federal government and majority of states scrapped a scheme that entitled employees to a state-funded life-long pension equivalent to almost half of their salary. It was replaced with a scheme funded through employee and government contributions.

In Mumbai, the state capital, and other cities, nearly 1.7 million employees have been on strike since Tuesday, said union leaders, who rejected a government offer to set up a panel to discuss workers' demands.

"The perils of the new pension scheme are visible," Vishwas Katakar, organiser of a committee of 35 protesting unions, told Reuters, adding employees faced a bleak future without adequate pension benefits.

The new pension scheme, which invests in equities and state bonds, provided a monthly pension of 2,000-5,000 rupees ($24-$60) to an employee, less than a quarter of the benefits under the old scheme, he said.

Devendra Fadnavis, state finance minister told lawmakers earlier this month that the old pension scheme was no longer affordable due to fiscal constraints.

Analysts said demand for higher pension benefits could become a major political issue in the coming state assembly elections and general elections next year. "This is a genuine demand of employees. The federal government should find a way within fiscal constraints," said N.R. Bhanumurthy, an economist and the vice chancellor at B.R. Ambedkar School of Economics University, Bengaluru.

On Friday, the government in the northern hilly state of Himachal Pradesh, where the main opposition Congress party seized power from Modi's party earlier in December, restored the old pension scheme for state employees.

($1 = 82.5250 Indian rupees)

(Reporting by Manoj Kumar and Rajendra Jadhav; Editing by Elaine Hardcastle)