Passengers sue to block UAL/Continental merger

* Group says deal would raise fares and cut service

* Airlines say lawsuit has no merit

ATLANTA, June 29 (Reuters) - The proposed merger of United Airlines UAUA.O and Continental Airlines Inc CAL.N would lessen competition and lead to higher fares, according to a lawsuit filed on Tuesday by a group of customers seeking to block the deal.

The complaint, filed in U.S. District Court in San Francisco, says the planned merger to form the world's largest airline could result in higher fares and service cuts.

"The effect of the announced merger between United and Continental may be to substantially lessen competition or to tend to create a monopoly," according to the lawsuit, which lists more than 45 individuals plaintiffs.

United, a unit of UAL Corp, said in May that it would buy Continental in a $3 billion all-stock deal. The new airline would fly under the name United. The Justice Department must still approve the transaction.

"We believe this suit has no merit, and we will vigorously defend what we strongly believe to be a transaction that is in the best interests of Continental, its shareholders and the flying public," Julie King, a spokeswoman for Continental, said in an e-mailed statement.

United spokeswoman Jean Medina said the airlines are cooperating with the DOJ and that the merger would "benefit customers with the most comprehensive route network."

The case is: Malaney, et al. v. UAL Corporation, et al. being heard in the U.S. District Court Northern District of California, San Francisco Division; CV 102858.

(Reporting by Karen Jacobs; writing by Kyle Peterson, editing by Leslie Gevirtz)