ISTANBUL, Aug 19 (Reuters) - Prosecutors in Turkey are investigating an impromptu roadside meeting at which pro-Kurdish MPs smiled and embraced separatist militants in the southeast of the country, an act which drew strong criticism from senior political leaders on Sunday.

The incident happened on Friday when Kurdistan Workers Party (PKK) rebels set up a roadblock and stopped a Peace and Democracy Party (BDP) convoy. Newspaper photos showed the MPs embracing five militants, who had rifles slung over their shoulders.

The PKK, designated a terrorist group by Turkey, the United States and European Union, launched its separatist insurgency 28 years ago and more than 40,000 people have since been killed.

Kurdish politicians, including those from the BDP, are frequently prosecuted for alleged links to the PKK, but deny ties with the militants. Previous Kurdish parties similar to the BDP have been closed down for such links.

"Those images are very saddening," President Abdullah Gul told reporters on Sunday after prayers at a mosque to mark Eid al-Fitr, the Muslim feast at the end of the fasting month of Ramadan.

"I warn all citizens that they must distance themselves very clearly from those who are embroiled in violence, blood and terrorism," he added.

The state prosecutor's office in the eastern province of Van has begun a preliminary investigation into the meeting in Hakkari province's Semdinli district under anti-terrorism laws, state-run Anatolian news agency reported.

Prosecutors would ask parliament to lift the MPs' immunity from prosecution, it added.

Friday's incident occurred when the BDP delegation, led by deputy party leader Gultan Kisanak and including eight other MPs, was travelling to a village in Semdinli.

KURDISH MPS DEFEND ENCOUNTER

Aysel Tugluk, an independent MP in the group, defended their actions when asked about the investigation.

"We are happy about the encounter. It was meaningful and significant for us to at least hear from them how they are fighting and in what circumstances," Tugluk said.

"They (prosecutors) can open as many investigations and impose as many penalties as they like," she told reporters.

Semdinli is a mountainous area on the border with Iran and Iraq, where the several-thousand strong militant force is based. In recent weeks it has been the scene of intense fighting between the PKK and the Turkish military.

Ankara has accused Syrian President Bashar al-Assad of giving the militants weapons and of allowing a PKK proxy party to exert its authority in towns in northern Syria - a move which has prompted threats of military intervention from Turkey.

The PKK has recently revived the practice of setting up roadblocks in mainly Kurdish southeast Turkey to spread party propaganda and to kidnap Turkish officials. Most recently, it seized an opposition Republican People's Party (CHP) deputy in Tunceli province, releasing him unharmed last Tuesday.

Prime Minister Tayyip Erdogan commented on both incidents on Sunday, criticising both the kidnapped CHP deputy and the BDP for refusing to label the PKK a terrorist group.

"Why? Because the separatist terrorist organisation is the reason for their existence or their entry into parliament," Erdogan told reporters.

"They enter parliament thanks to the fear which the separatist terrorist organisation creates in society," he said. (Writing by Daren Butler; Editing by Andrew Osborn)