UPDATE 2-AT&T Missouri to pay $1.4 mln to settle DOJ charge

* AT&T Missouri accused of colluding with school officials

* Rival had filed lawsuit alleging violations

* AT&T admits no wrongdoing (Adds comment from AT&T)

WASHINGTON, Oct 13 (Reuters) - AT&T Missouri, a part of AT&T Inc (T.N), agreed to pay $1.4 million to settle a civil lawsuit alleging it violated rules regarding contracts to provide Internet service to needy schools and libraries, the U.S. Department of Justice said on Tuesday.

The department accused AT&T Missouri of colluding with officials in Kansas City, Missouri, schools to win contracts without competitive bidding.

"The United States previously filed suit against and settled with the Kansas City, Mo., School District," the department said.

The so-called E-Rate program provides funding for needy schools and libraries to connect to the Internet. It is supported by fees collected from telephone users and overseen by the Federal Communications Commission.

The allegations sprang from a lawsuit filed by American Fiber Systems Inc, which bid for E-Rate contracts and lost.

AT&T did not admit any wrongdoing in the settlement.

"This lawsuit involved the factors used to award an E-Rate funded contract to AT&T. There was no finding that AT&T violated any laws, rules or regulations," said an AT&T spokesman. (Reporting by Jeremy Pelofsky and Diane Bartz; editing by Lisa Von Ahn and Andre Grenon)