QUITO (Reuters) - Ecuador wants villagers living near mines to be shareholders in large projects as part of a new mining law that is key for the development of the country's nascent sector, President Rafael Correa said on Saturday.

A government-controlled assembly last week froze metal exploration until a new mining law is approved and slashed miners' assets, plummeting the stock of foreign mining firms operating in Ecuador.

"Under this new mining law ... communities will have to be shareholders in these mining projects," Correa said during his weekly radio address. "This decree has tough measures but needed ones to deal with the chaos in the industry."

Correa, who says he backs big mining projects if they benefit the poor nation with billions of dollars in revenues, did not say how big a stake communities should hold in mining projects.

Environmentalists and villagers in southern Ecuador have engaged in sometimes violent demonstrations to demand an end to mining projects, which they say will damage the country's pristine environment.

The government plans to have a final version of the law ready by late May, mines ministry officials said.

Ecuador does not currently produce significant quantities of precious metals, but dozens of foreign firms, including Canadian-based Aurelian Resources Inc (ARU.TO - news) and Corriente Resources Inc (CTQ.TO - news) , have found large gold and copper deposits.

Some mining companies saw their stock prices rise on Friday after meeting with Correa who said his government would back projects that comply with new environmental controls and share more of their revenues with the state.

"For their (companies') benefit, to lower the social conflict ... to have clear rules of the game and have national consensus the mining decree was needed," Correa said during the radio show. "We will try to have a new legal framework ready as soon as possible... We welcome foreign investment."

He also said the government will protect the properties and installations of mining firms from any invasions by protesters.

(Reporting by Alonso Soto; Editing by Eric Walsh)