* Millhouse may pay 500 mln euros under some circumstances
* EBRD confirms has teamed up with Advent
* Hypo Alpe Adria, finance ministry decline comment (Adds EBRD official's comment, no comment from Hypo)
VIENNA/LONDON, July 29 (Reuters) - London-based investment group Millhouse Capital said it was ready in principle to raise its offer to 500 million euros ($672 million) for nationalised Austrian lender Hypo Alpe Adria's Balkans network, raising the stakes in the sale process.
Millhouse, owned by German businessman Ralf Dodt, had earlier offered 200 million euros, a spokesman for the company said on Tuesday. He said Millhouse could help protect Austrian taxpayers by providing 1 billion euros in guarantees for loans Hypo had made, and that it intended to keep the Balkans business intact.
Hypo, which Austria had to nationalise in 2009 after a decade of breakneck expansion at home and in the former Yugoslavia, is selling the Balkan network, its prime asset, while hiving off toxic assets into a "bad bank".
Sources familiar with the process said this month, before Millhouse made its bid, that the front-runners for the assets were Advent International in partnership with the European Bank for Reconstruction and Development, and a group of Bulgarian investors headed by airline and property owner Denis Barekov, backed by Russian financial group VTB.
Millhouse - which has no ties to Millhouse LLC, which manages assets of Russian oligarch Roman Abramovich - said last week it had abandoned plans to join the Bulgarian consortium.
At least one other investor, Russian businessman Igor Kim's Expobank, has bid for the whole Balkans network, three sources familiar with the process have said.
"Under certain circumstances we are willing to pay the book value of the bank of 500 million euros," a Millhouse spokesman said in an email, without specifying any conditions.
"It is not in our intention to break the bank in separate parts. We want to invest in these countries where the bank is active," the spokesman said.
Nick Tesseyman, head of the EBRD's financial institutions sector, confirmed the bank's interest in the sale. "We have spent a lot of time on this deal and think it is a good investment. We are not completely confident of a good conclusion but we are hopeful of a good conclusion," he told Reuters.
Tesseyman likened the potential investment to the EBRD's move to fund 120 million euros of a capital increase at Bank of Cyrpus.
Hypo's Balkan network, comprising banks and leasing operations in Serbia, Croatia, Bosnia, Slovenia and Montenegro, had assets of 8.6 billion euros at the end of 2013 but a book value of only 500 million after a series of impairments.
The business has lost value while Austrian politicians wrangle over what to do with the rest of the bank, which has so far received 5.5 billion euros in state aid.
The finance ministry said only that Hypo was handling the sale and that the government wanted a quick deal that spared taxpayers as much as possible. Hypo declined comment.
Finance Minister Michael Spindelegger told parliament this month that seven bidders were in the race. This included bidders for just parts of the unit.
Deutsche Bank is advising on the sale.