* Hanging takes place secretly in Pune
* First execution in India since 2004
* Kasab called a hero by Pakistan-based militant group
* Ties between India and Pakistan still sensitive
By Satarupa Bhattacharjya and Kaustubh Kulkarni
MUMBAI/FARIDKOT, India, Nov 21 (Reuters) - India secretly hanged the lone survivor of the Pakistan-based militant squad responsible for a rampage through Mumbai that killed 166 people, sparking celebrations days before the fourth anniversary of the assault on the financial capital.
Pakistan national Mohammad Ajmal Kasab was the enduring image of the bloody assault, which traumatised India and raised fears of copycat attacks on foreign cities. Pictures of the baby-faced gunman wearing a black T-shirt and toting an AK-47 rifle as he strode through Mumbai's train station were published around the world.
Kasab was executed on Wednesday morning amid great secrecy, underscoring the political sensitivity of the Nov. 26, 2008, massacre, which still casts a pall over relations between nuclear-armed rivals Pakistan and India.
"All the police officers and personnel who lost their life in the battle against the terrorists have today been served justice," Home Minister Sushil Kumar Shinde said after Kasab was hanged in a jail in Pune, southeast of Mumbai.
It was the first time a capital sentence had been carried out in India since 2004. There was celebration on the streets of Mumbai and other cities as news of the execution spread, but militant groups in Pakistan reacted angrily.
People set of fireworks and handed out sweets in Indian cities. Some held up photos of Kasab with a rope noose superimposed over his head.
Attack survivor Vishnu Zende, who was working at Mumbai's train station where nearly 60 people were killed, said the execution brought it all back.
"When I heard the news of Kasab's execution today, I remembered those horrifying moments of the attack," Zende said.
"My eyes were filled with tears."
An effigy of Kasab was hung by the neck from the entrance gate of the station by a right-wing local party. A crowd of about 30 shouted "Pakistan murdabad" (death to Pakistan) as they beat the effigy, which had shoes hung around its shoulders.
In Pakistan, a senior commander of the Lashkar-e-Taiba (LeT) militant group, which India blames for the assault on Mumbai, called Kasab a hero and said he would inspire more attacks.
"To die like Kasab is the dream of every fighter," the commander told Reuters by telephone from an undisclosed location.
The Pakistan Taliban said they were shocked by the hanging.
"There is no doubt that it's very shocking news and a big loss that a Muslim has been hanged on Indian soil," Taliban spokesman Ihsanullah Ihsan told Reuters.
TICKET TO HEAVEN
Kasab was buried inside the prison where he was hanged, officials said. He was quiet and seemed nervous before the execution, a prison guard told the NDTV network. He prayed and asked if his family had been informed, which they had.
India said it would hand over the body to Pakistan if asked. Talking to Reuters from his home village of Faridkot, Kasab's aunt said she was proud of him and wanted his body back. A school mate remembered a boisterous child who loved karate "but never harmed anyone". Villagers threw stones and slapped around journalists who went to the village in the province of Punjab.
This year, Saudi Arabia extradited an Indian-born militant accused of being one of the masterminds of the Mumbai attacks. Police say Sayeed Zabiuddin Ansari, also known as Abu Jindal, helped coordinate the attack from a "control room" in the Pakistani city of Karachi and also helped to train the gunmen.
In a video of his interrogation by Indian police, Kasab said his trainers and handlers had assured him prior to the attack that his killing spree was a sure ticket to rewards in heaven.
In August, India's Supreme Court upheld Kasab's 2010 death sentence over the attacks. President Pranab Mukherjee rejected his plea for clemency on Nov. 5, although this was not made public until Tuesday night.
The timing of the execution, shortly before a series of state elections, may be beneficial for the government, which opposition leaders accuse of being soft on national security.
Narendra Modi, the Hindu nationalist chief minister of Gujarat state, which goes to the polls in December and borders Pakistan, said on Twitter the government should move faster to execute Afzal Guru, convicted of a 2001 attack on parliament.
Ten militants arrived on the Mumbai shoreline in a dinghy on Nov. 26, 2008, before splitting into four groups and embarking on a killing spree. They held off elite commandos for up to 60 hours in two luxury hotels and a Jewish centre in the city.
India says Islamabad is failing to act against those behind the raids, including LeT founder Hafiz Saeed, who has a $10 million U.S. bounty on his head. Pakistan admits the attacks were planned on its soil, but denies official involvement.
It says seven suspects are being prosecuted for their role.
"Kasab was a foot soldier, the generals are in Islamabad, in Pakistan, and full justice will be done when they are brought to justice," Gopalapuram Parthasarathy, a former ambassador to Pakistan, told Reuters.
Improving relations with Pakistan is a keystone of Prime Minister Manmohan Singh's foreign policy. Singh, who was born in present-day Pakistan when it was still part of British India, has repeatedly postponed visiting the country because of lack of progress on convicting the Mumbai suspects.
However, India and Pakistan's relations have gradually improved since the attacks, with progress made on trade and economic ties.
Possibly because of the planned execution, India on Tuesday asked Pakistan to postpone a visit this week by Interior Minister Rehman Malik, saying the dates were "not suitable for us". Malik was due to put the final seal on a deal to ease visa restriction for travellers.
Kasab's execution happened very quickly for India's usually glacial justice system. Three people convicted of the assassination of former Prime Minister Rajiv Gandhi are still on death row, 21 years after he was killed by a suicide bomb.
In Pakistan, many said the hanging happened quickly only because of his nationality. People questioned whether Kasab was really guilty, despite the video evidence.
"We have images of him but do we have any other evidence? Is that enough?," said Jehan Zulqarnain, a primary school teacher in Islamabad.
Pakistan was informed beforehand about Kasab's execution, said a Pakistani foreign ministry official who asked not to be identified. "If all judicial procedures were followed, then the decision is acceptable," the official said.