ADDIS ABABA (AFP) — The United States, Ethiopia’s main donor, warned Friday that a new law adopted by Addis Ababa restricting foreign-funded aid groups may curtail its assistance.

Under the new law, any group that draws more than 10 percent of its funding from abroad will be classified as foreign, and thus banned from working on issues related to ethnicity, gender, children’s rights and conflict resolution. “We recognise the importance of effective oversight of civil society organisations… However we are concerned this law may restrict US government assistance to Ethiopia,” a State Department statement said.

Despite criticism, Ethiopia’s parliament on Tuesday overwhelmingly passed the bill, which the government argues is solely to safeguard citizens’ rights.

Georgette Gagnon, the Africa director for the New York-based Human Rights Watch, said the law is a “repression, not regulation.”

“If enforced, this law will make Ethiopia one of the most inhospitable places in the world for both Ethiopian and international human rights groups,” she said in a statement.

The Horn of Africa nation, a key ally in Washington’s “War on Terror” against Islamist extremists, received more than 900 million dollars in aid from the US in 2008.

Ethiopia, a poverty-stricken country of 77 million, is among the world’s chief aid recipients.