By Patricia Zengerle

WASHINGTON (Reuters) - The U.S. Senate Foreign Relations Committee overwhelmingly passed legislation on Wednesday to ease tight U.S. controls on aid to Egypt, which was largely cut off after Egypt's military ousted President Mohamed Mursi last summer.

The panel passed the measure by a 16-1 vote hours after Egypt's public prosecutor escalated a crackdown on the movement that brought Mursi to power by charging the ousted president and 35 other leading Islamists with international conspiracy.

Backers of the legislation - which could set a precedent for U.S. aid to any country after a coup - said it struck an appropriate balance between pushing Cairo to embrace democratic reforms and continuing the U.S. commitment to Egypt.

The "Egypt Assistance Reform Act of 2013" allows aid, but makes it subject to conditions such as adhering to the Israel-Egypt peace treaty, cooperating on counter-terrorism and taking steps to restore democracy.

The measure also revises the U.S. "coup law," which bars aid to countries whose democratically-elected head of state has been removed in a coup d'etat or by military decree.

President Barack Obama's administration announced on Oct. 9 - after authorities in Cairo used violence to put down protests - that it would withhold deliveries of tanks, fighter aircraft and other military equipment, as well as $250 million in cash aid, from Egypt's military-backed government until it made progress on democracy and human rights. The administration held off, however, from officially declaring events in Egypt a coup.

The actions prompted many lawmakers to call for a change in U.S. policy, worried that Washington was threatening its close relationship with a country that has been an important ally in an unstable region.

Wednesday's committee vote cleared the legislation for consideration by the full Senate, but it was not certain when it might get to the floor, or whether it would be considered as a standalone bill or as part of a larger appropriations bill.

'MONEY FOR TEAR GAS'

"Given the scale of U.S. aid and the ongoing strategic significance of a stable, prosperous Egypt, this total shutdown (of aid) does not serve, in my view, U.S. or Egypt's interests," said Senator Robert Menendez, the committee's Democratic chairman.

He also said terms of defense equipment contracts meant the aid cutoff could cost U.S. taxpayers billions of dollars in default payments. The Pentagon has for decades had a close relationship with Egypt's military, which also has been an important customer to U.S. defense contractors.

The new measure requires the U.S. Secretary of State to determine whether a coup took place and advise congress of that decision.

It also allows the president to waive the coup law restrictions for 180 days if doing so is deemed to be in the vital U.S. national security interest and a government is committed to restoring democracy and the rule of law.

Kentucky Republican Rand Paul, the only member of the committee to vote against the measure, questioned whether it was a bow to defense contractors' desire to sell military equipment toEgypt.

"I think it's a mistake to have less restriction on foreign aid. I think we should have more restriction on foreign aid," Paul said, adding that U.S. military aid could be used against protesters.

"We're going to give more money for tear gas," he said.

Backers of the measure said their support had nothing to do with defense spending, insisting the measure is intended to clarify U.S. policy and support democracy in Egypt.