UPDATE 2-Euro zone nears deal on lifeline for Greece
* Athens needs 8 bln euros but payment set to be drawn out
* EU/IMF lenders say "outlook remains uncertain" for Greece
* Last week's Portuguese upheaval sets uncomfortable backdrop
BRUSSELS, July 8 (Reuters) - With fresh promises from Greece to redouble its reform efforts to keep international financial aid flowing, euro zone finance ministers will decide on Monday if Athens gets the cash it needs all at once or by drip feed.
There will also be warning shots to Portugal to ensure that its economic reforms stay on track despite political stress.
After more than three years on a lifeline from Europe, Greece's governing coalition is split over how to meet the demands of its bailout programme, putting the country centre stage and threatening to reignite the euro zone debt crisis.
But a week of talks in Athens, culminating in promises to reform the public sector, appeared to convince the troika of international lenders - the International Monetary Fund, the European Commission and the European Central Bank - that Greece is committed to rebuilding its economy.
That paves the way for Greece to receive 8.1 billion euros ($10.5 billion) as part of its 240-billion euro rescue package, although ministers meeting in Brussels may split up the cash into instalments to force through unpopular reforms ranging from sacking public workers to selling state assets.
"If we get proof that Greece is living up to everything, then Greece will get its money," Luxembourg Finance Minister Luc Frieden told reporters as he arrived at the meeting.
In Athens, thousands of Greek municipal workers and state school teachers took to the streets to protest against the public sector layoffs that the government has promised in exchange for the funds.
In a cautiously worded statement, the troika said it believed Greece can meet targets on reforming its economy. "Important progress continues to be made," the statement said, cautioning of an 'uncertain' outlook.
Greek officials said on Sunday the troika agreed to give Athens more time to make staff cuts and that 25,000 state workers must be moved into a so-called mobility scheme by the end of 2013 - to be transferred or laid off within a year.
Among the most upbeat of the ministers was France's Pierre Moscovici, who signalled money could be paid by the end of the month. "The basis exists for a political accord," he said.
Germany's Finance Minister Wolfgang Schaeuble was more wary. Officials earlier told Reuters that Berlin was unlikely to support a full disbursement to Greece on Monday.
Schaeuble is mindful that his boss, German Chancellor Angela Merkel, is seeking a third term in elections on Sept. 22 and wants to avoid being seen at home as too generous to spendthrift countries.
"The path for Greece will remain a difficult one. I would warn against any illusions," Schaeuble told reporters. "It is far from the case that all problems are resolved."
Olli Rehn, the EU's commissioner in charge of economic affairs, confirmed on Friday that the next tranche may be paid in instalments, which would be conditional on Athens meeting so-called milestones on Greek reforms, such as cutting state jobs.
Euro zone finance ministers, accompanied by ECB President Mario Draghi and IMF head Christine Lagarde, will also deliver a firm message to Portugal that last week's political instability must not derail its plan to return to the debt market in 2014.
Officials are concerned that more upheaval could upset Lisbon's efforts to leave a 78-billion-euro bailout programme as the country's bond yields topped 8 percent last week, a level seen as making new borrowing unaffordable.
Vitor Gaspar, the architect of Portugal's austerity drive under the bailout, resigned last week, citing a lack of public support for cuts into welfare benefits and tax hikes. Unemployment is at a record high of nearly 18 percent.
Hoping to end a rift that threatened to bring down the government, Portugal's prime minister promoted the head of the junior coalition party to be his deputy.
"The ministers will give Portugal the message that the country should stick to its obligations," said a euro zone official, who added that the country had funds that give it, unlike Greece, some room for manoeuvre.
Portugal's new finance minister, Maria Luis Albuquerque, is a familiar face to the euro zone ministers, having earlier attended their meetings as an official.
But the events are being followed with unease by the ECB. Draghi told lawmakers in the European Parliament that Portugal should not "unravel the progress" that it had made.
It has also worried some economists in Ireland, which is due to return to normal market borrowing and exit its bailout programme in coming months.
"The problems of Portugal and Greece keep on coming back to haunt us," said John Fitzgerald of the Economic and Social Research Institute, a Dublin-based think tank. "With the crisis not put to bed, we are walking in a minefield."