UPDATE 5-Italy pulls together emergency loan for Alitalia

(Recasts with loan approval)

By Deepa Babington and Alberto Sisto

ROME, April 22 (Reuters) - The Italian government will give Alitalia AZPIa.MI a $475 million emergency loan, risking the ire of the European Commission, as it tries to avoid bankruptcy at the airline after Air France-KLM (AIRF.PA) dumped its bid.

Outgoing Prime Minister Romano Prodi said on Tuesday the figure had been requested by his successor, Silvio Berlusconi, in order to have time to sort out alternatives.

With the state-controlled carrier expected to run out of cash in a few months, Italy's incoming and outgoing administrations are heading a rare bipartisan effort to keep the national carrier in the air until a new buyer is found.

Air France-KLM formally withdrew its offer on Monday, dealing a final blow to the deal, which fell apart this month over union opposition.

That gave Berlusconi his first big headache since winning last week's election -- finding a way to funnel cash to the carrier without angering the European Commission, which has threatened court action over any further state aid for Alitalia.

Prodi said his cabinet agreed the 300 million-euro ($475 million) bridge loan that must be reimbursed by the end of the year. The loan should allow Alitalia to stave off bankruptcy in the short-term and give it breathing space for a few months.

Business daily Il Sole 24 Ore had said reasons of "public order" would be cited to defend the loan from EU concerns.

'SERIOUS AND DAMAGING'

A European Commission spokesman said it was too early to comment on the loan and that Brussels needed to study the details first. But the Commission had earlier warned any decision on aid without approval from Brussels first could end up in court.

"We are ready to give a quick green or red light to any loan, but what would be very serious and very damaging would be if Italy decided to go ahead with the loan first and then decide to inform us," an official familiar with the matter said.

"But if Italy takes this road or cannot justify the loan, then make no mistake the Commission will come down very hard and will move as quick as possible."

Italy's economy minister, Tommaso Padoa-Schioppa, said he hoped the European Union would take into account that Italy's next government is confident of finding an alternative to the failed takeover by Air France-KLM.

Also on Tuesday, the European Commission's president said an Italian may soon take over as its next transport commissioner -- a job which would include overseeing the EU executive's dealings with Alitalia.

Commission President Jose Manuel Barroso announced the potential reshuffle in the event that Italy's Franco Frattini quits his post as EU justice and security commissioner to join Berlusconi's cabinet, as expected.