UPDATE 1-Turkish authorities to sell or liquidate Bank Asya -fund chairman

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ISTANBUL, Feb 26 (Reuters) - Turkey plans to sell Islamic lender Bank Asya by the end of May and will liquidate it if a buyer is not found, the chairman of the deposit insurance fund that controls the bank told reporters on Friday.

The bank was taken over by Turkish authorities last year, making it a high-profile victim in a feud between President Tayyip Erdogan and U.S.-based cleric Fethullah Gulen, whose followers founded the bank.

“We are in talks to sell the bank. Some of its partners have accepted it, some of them have not. We will sell the bank in any case,” Sakir Ercan Gul, chairman of the Savings Deposit Insurance Fund (TMSF), said in Istanbul.

Last year the government seized the assets of Bank Asya, saying its financial structure and management presented a threat to the financial system, and took over more than 20 companies with ties to Gulen, including some opposition media outlets.

Erdogan has accused Gulen -- whose adherents run schools, broadcasters and newspapers -- of attempting to create a “parallel state” to topple him, which the cleric denies.

The campaign against Bank Asya started almost two years ago when its depositors, including state-owned companies and institutions and foreign fund managers, withdrew 4 billion lira ($1.36 billion), amounting to about 20 percent of its deposits, eroding its earnings and capital base. ($1 = 2.9360 liras)

Additional reporting by Humeyra Pamuk; Writing by David Dolan and Ece Toksabay; Editing by Dasha Afanasieva and David Goodman