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TAIPEI, Aug 7 (Reuters) - Taiwan's Defence Ministry said on Wednesday it has cancelled military exercises set for next week as part of efforts to defuse tension with Beijing after President Chen Shui-bian backed a referendum on independence from China.

The ministry had decided to scrap the anti-submarine drills off eastern Taiwan next Thursday to "avoid speculation and misunderstanding given the current situation in the Taiwan Strait", said a ministry official who spoke on condition of anonymity.

Taipei's mass-circulation China Times said in a front-page report that Chen ordered the ministry to cancel the drills to "express goodwill to the other side".

Chen said on Saturday that holding a referendum was a "basic human right" and that in reality there was "one country on each side" of the Taiwan Strait. This triggered an angry response from Beijing, which warned that he was leading the island to disaster.

On Tuesday, Chen said his speech had been oversimplified and sought to soften his "one country on each side" comments, saying "equal sovereignty" would be a more appropriate way to sum up his speech.

But Beijing's China Daily reported on Wednesday that China's military had said Chen might risk attack if he pressed ahead with a vote on independence.

Beijing considers Taiwan a renegade province and has threatened to attack if the democratic island of 23 million declares independence or drags its feet on unification talks. 

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