UPDATE 1-Russia's Interros challenges Polyus spin-off plan

(Adds details from letter)

MOSCOW, Feb 28 (Reuters) - Russian billionaire Vladimir Potanin's Interros group has urged fellow shareholders in Polyus Gold (PLZL.MM) (PLZLq.L) to challenge a proposal by the mining firm's management to carve off its exploration business.

The recommendation is the latest twist in the division of metals assets belonging to Potanin and his former business partner, Mikhail Prokhorov, and threatens to stall plans by some Polyus executives to create a separate exploration division.

Polyus President Yevgeny Ivanov said last week the company planned to carve off its exploration business through a private share placement in March or April, pending board approval.

Interros, in a letter to shareholders dated Feb. 22, said it demanded Polyus elect a new board comprising at least three independent directors.

It said the company's charter should be amended in order that "all significant transactions" must be passed by six members of a nine-man board compared with potentially as few as three currently.

"As the management plan currently stands, I am very concerned that it may destroy value for Polyus Gold shareholders," Interros Deputy Chief Executive and Polyus board member Sergei Batekhin wrote in the letter.

Potanin and Prokhorov, who each own large stakes in Polyus and Norilsk Nickel (GMKN.MM), have not previously agreed on how best to split the exploration unit at Polyus, which mines a quarter of Russia's gold.

Board members representing Potanin have repeatedly boycotted meetings.

Prokhorov and Ivanov returned to the helm of Polyus last October after a four-month break which analysts had linked to the proposed asset split between the two co-owners.

In December, the board entrusted Ivanov to prepare comparative analyses of possible options for carving out the assets, including their sale or a transfer to an independent firm and subsequent listing.

Ivanov said last week he favoured the latter option.

Polyus, which has the world's fourth-largest gold reserves, produced 1.2 million ounces of gold in 2007, the same amount as in 2006, and expects to keep output steady until 2009.

Thereafter, it will sharply increase output after it starts mining several large deposits in eastern Russia. (Reporting by Robin Paxton; Editing by Quentin Bryar)