UPDATE 1-Italy delays decree to pay state debts to companies

* State owes firms around 100 bln euros

* Monti criticised over delay to decree

* Measure seen as vital to help economy

(Adds details, quotes, background)

ROME, April 3 (Reuters) - Italy's caretaker government announced on Wednesday it was delaying approval of a decree to pay back some 40 billion euros of state debts to private firms.

The legislation, which Mario Monti's outgoing administration says can provide vital liquidity to Italy's cash-strapped companies and help tackle a deep recession, was scheduled to be approved at a cabinet meeting later in the day

A statement from the cabinet office said the meeting would instead be held "in the next few days."

Economy Minister Vittorio Grilli and Industry Minister Corrado Passera "pointed out to the prime minister the need to reflect further before drawing up the decree," it said.

Several of the parties that must approve the measure in parliament said on Tuesday they opposed a proposal to hike income tax to help fund it, forcing Monti to reconsider his plans.

Monti, who has been the target of constant sniping from across the political spectrum since his centrist alliance won only around 10 percent of the vote at February's inconclusive election, faced more criticism after the delay to the decree.

He told parliament last month that he "couldn't wait" to leave office, but the deadlock following the election has prevented him from stepping down because no other government can be formed to replace him.

Stefano Fassina, economics spokesman for the centre-left Democratic party said the decision was "disconcerting," and Monti must explain it in parliament, while Luigi Casero of the centre-right People of Freedom, called it "extremely grave."

Before the delay Fassina had said it was unacceptable for the government to fund the repayments through tax hikes.

(additional reporting by Steve Scherer. Editing by Jeremy Gaunt.)