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UPDATE 1-U.S. regulators to approve fix for more than 300,000 VW diesels -sources

-sources@ (Adds details on Volkswagen's previous efforts to fix emissions problems in United States, adds that EPA did not immediately comment, other background, adds REGULATOR to end of slug)

WASHINGTON, July 27 (Reuters) - The U.S. Environmental Protection Agency and California Air Resources Board will approve later on Thursday a fix for more than 300,000 older Volkswagen AG diesel cars, two people briefed on the matter said.

The fix will include hardware and software upgrades, but will reduce vehicle fuel economy ratings by as much as 2 miles per gallon, said the persons, who could not speak for attribution because the decision was not yet public.

The world's largest automaker will still need to obtain approval for a resale plan for the 2009-2014 model diesel vehicles after making repairs, but the fix is a significant milestone for the company that aims to move beyond its diesel emissions crisis. Volkswagen and EPA did not immediately comment.

In March, Volkswagen pleaded guilty to three felonies in a U.S. court and admitted it used secret software that allowed vehicles to emit pollution at up to 40 times the legal limit.

Volkswagen agreed last year to offer to buy back up to 475,000 2.0-liter diesel vehicles that had been sold in the United States, including the vehicles that won approval on Thursday for a fix. It can now offer hardware and software upgrades and compensation to owners.

As of the end of May, Volkswagen had 37 secure storage facilities around the United States housing close to 275,000 vehicles. Those places include a shuttered suburban Detroit football stadium and a field near a raceway in Colorado.

Gaining approval of a fix is a key step toward allowing Volkswagen to resell or potentially export tens of thousands of diesel cars it has repurchased and is storing all over the United States.

The automaker has spent more than $6.3 billion to repurchase 2.0-liter vehicles and compensate owners.

The vehicles winning approval for an upgrade are the oldest of the models that came under scrutiny in the company's diesel cheating scandal, known as "Generation One."

Volkswagen said previously that about 325,000 vehicles were in Generation One including diesel Jetta, Jetta SportWagen, Golf, Beetle, Beetle Convertible and Audi A3 cars.

Earlier this year, EPA approved fixes for two newer generations of diesel cars - including 84,000 2012-2014 Passat diesel vehicles with automatic transmissions in "Generation Two" and 67,000 2015 model diesels in "Generation 3."

Volkswagen has agreed to spend up to $25 billion to address claims from U.S. owners, environmental regulators, states and dealers, and offered to buy back about 500,000 polluting U.S. vehicles, including some larger 3.0 liter vehicles. (Reporting by David Shepardson; Editing by Matthew Lewis)