By David Brunnstrom and Steve Holland
WASHINGTON (Reuters) - U.S. President Barack Obama congratulated new Indian leader Narendra Modi on his election victory on Friday and invited him to the White House, even though he was barred from the country less than 10 years ago over massacres of Muslims.
Modi's Bharatiya Janata Party and its allies swept India's elections, putting him in position to be prime minister, and ousted the ruling Nehru-Gandhi dynasty in a seismic political shift that gives the Hindu nationalist and his party a mandate for sweeping economic reform.
Obama told Modi by telephone that he looked forward to working closely with him to "fulfill the extraordinary promise of the U.S.-India strategic partnership," the White House said.
"The president invited Narendra Modi to visit Washington at a mutually agreeable time to further strengthen our bilateral relationship."
A U.S. visit could come as soon as the U.N. General Assembly in New York in September, when Modi could also visit Washington.
The administration of President George W. Bush denied Modi a visa in 2005 under a 1998 U.S. law barring entry to foreigners who have committed "particularly severe violations of religious freedom."
In 2002, when Modi had just become Gujarat's chief minister, more than 1,000 people, mostly Muslims, were killed in sectarian riots in the state.
Modi denied any wrongdoing. India's Supreme Court ruled in 2010 he had no case to answer.
The anti-Modi lobby in the United States has dwindled. In March, a congressional report said Modi would qualify for a visa if he became leader.
Washington sees its relationship with India as critical, partly to counterbalance China's rising power. Obama has called it "one of the defining partnerships of the 21st century."
A Modi government could boost investor confidence though residual bad feeling over the visa issue will need to dissipate.
The U.S.-India relationship hit its lowest ebb in a decade last year after a junior Indian diplomat, Devyani Khobragade, was arrested and strip-searched in New York. The U.S. ambassador to India resigned after the incident and has yet to be replaced.
Businessmen attending an election result lunch at the Indian ambassador's residence in Washington on Friday expressed optimism about a more investor-friendly environment under Modi.
However, some privately expressed concern about a possible revival in communal violence.
Last month, Nisha Biswal, the top U.S. diplomat for South Asia, said the United States wants bilateral trade of $500 billion a year, up from about $100 billion currently.
One concern for Western businesses is the BJP's welcoming of foreign direct investment in all sectors that create local jobs excluding supermarkets, a setback to retailers such as Wal-Mart Stores Inc and Carrefour.
Drug patents are another sore point. The government has been considering allowing the generic manufacture of a number of patented drugs to give India's 1.2 billion people access to affordable medicines, putting it at odds with Western pharmaceutical companies.
(Editing by Jason Szep and Mohammad Zargham)