MANAMA, Jan 9 (Reuters) - Bahrain's King Hamad bin Isa al-Khalifa has issued a law to combat human trafficking, the kingdom's state news agency said on Wednesday, days before a visit by U.S. President George W. Bush.

The United States, which has a free trade agreement with Bahrain, has criticised other Gulf Arab allies for failing to take steps to effectively curb human trafficking.

'The law stipulates that the penalty for a human trafficking crime would be prison and a fine ranging from 2,000 Bahrain dinars ($5,319) to 10,000 dinars,' the Bahrain News Agency (BNA) said on its Web site.

The law also calls for the formation of a committee to combat human trafficking. The BNA did not say whether the law was now in effect.

Like other Gulf Arab states, Bahrain relies heavily on expatriate labour -- about a third of the island's population of 743,000 people are foreign workers -- and has been criticised by rights groups for not doing enough to protect them.

The majority of Bahrain's immigrant workers are from South Asia, and are often lured to the island kingdom with promises of wages or working conditions that are not honoured on arrival -- something that would qualify as human trafficking under the new law.

In November, the United Arab Emirates enacted a law to make human trafficking punishable by life imprisonment, and has set up a state body to combat the transfer of people for work by force or under false pretences.

Human trafficking affects virtually every region in the world and U.N. estimates say the trade could be worth some $32 billion in both 'sales' of individuals and the value of their exploited labour.