UPDATE 1-Saudi Binladin seeks loan extension after Grand Mosque payment delay

* Asks for 817 mln riyal repayment extension - sources

* Awaiting Saudi govt payments for Grand Mosque project - sources

* Latest setback after suspension from new state contracts (Adds detail, context)

DUBAI, July 18 (Reuters) - Saudi Binladin Group has asked for an extension on an 817 million riyal ($217.8 million) Islamic loan that matured last week and which was being used to fund construction on the kingdom’s Grand Mosque site, sources aware of the matter said.

The request to delay the payment, originally due on July 15, was because the Saudi government had yet to reimburse the construction firm for work carried out on Islam’s holiest location, the sources said on condition of anonymity due to the subject’s sensitivity.

The company has been hit by government spending cuts and by its suspension from receiving new state contracts since September last year, when a crane accident killed 107 people at the Grand Mosque.

Binladin declined to comment. Dubai Islamic Bank, which originally helped arrange the Islamic loan, declined to comment. A spokesman for the Saudi Ministry of Finance couldn’t be reached for comment.

Binladin has continued work on the mosque renovations, sources said, despite the delays in government payment and a criminal investigation into the incident.

A state-linked newspaper reported last week that engineers and two government officials will face trial over the deaths.

The ban on Binladin was lifted in May, although the company still has debt of around $30 billion, bankers estimate.

Binladin, a construction firm started by a Yemeni immigrant in the 1940s, has been tasked with a number of sensitive works over the years by the Saudi authorities, including the current expansion of the Grand Mosque in Mecca, which houses the Kaaba, the structure to which Muslims face while praying.

According to sources, Binladin has 1.071 billion riyals of approved payments on work completed on the project up until December 2015 which are still outstanding.

It has filed a further 1.3 billion riyals of claims for work covering the period January-April 2016, for which approval is still needed.

In lieu of these receivables being paid, the builder has asked the banks to accept an extension to Aug. 31 on the murabaha facility, a cost-plus-profit arrangement which is compliant with Islamic financing standards.

As well as Dubai Islamic Bank, the consortium of around 8-9 lenders which provided the murabaha were mainly from the United Arab Emirates and includes Emirates NBD, Noor Bank and Ajman Bank, two of the sources said.

The sources said the creditor banks would likely agree to the extension as they were confident they would eventually be repaid, given the project’s importance to Saudi Arabia.

This is not the first time that Binladin has required extra time to meet a debt repayment.

The firm repaid a 1 billion riyal Islamic bond that matured in late June after a delay, with the payment coming from a 2.5 billion riyal loan the company secured from two local banks in May to help pay for the costs of laying off staff.

$1 = 3.7504 riyals Additional Reporting by Katie Paul; Editing by David French and Louise Heavens