(Adds background on Puerto Rican economic crisis and labor disputes)
NEW YORK, Aug 28 (Reuters) - Puerto Rico's federal oversight board on Monday sued Governor Ricardo Rossello, saying he has no authority to reject planned employee furloughs and pension cuts the board says are necessary to pull the bankrupt U.S. territory from economic crisis.
Escalating a long-running power struggle between the federally appointed board and the governor, the lawsuit asks a U.S. federal court in San Juan to rule the planned furloughs and pension cuts are part of an economic turnaround plan that has been approved by the board.
"The governor must enforce and comply with all aspects of the ... fiscal plan," including pension cuts and furloughs set to begin on Thursday, the board said in a 23-page complaint.
Rossello's administration has said it will not impose furloughs or cuts, arguing they were not part of the original turnaround plan, but amendments added by the board.
Puerto Rico, which earlier this year filed the biggest bankruptcy in U.S. municipal history, is struggling to regain economic stability in the face of a $72 billion debt load, a 45 percent poverty rate and near-insolvent public health and pension systems.
Investors are watching closely to see if the island can use bankruptcy to address deep-seated structural problems, or if it will just cut debt.
Labor is a key issue, and one shrouded in uncertainty lately, as one union has sued to block the furloughs and pension cuts while others have planned widespread protests on Wednesday.
Puerto Rico's seven-member financial oversight board, created by U.S. Congress last year, has called for $880 million in savings through "right-sizing" government. It has said furloughs of two days per month, excluding frontline law enforcement, alone would save $218 million this fiscal year.
The board included furloughs and pension cuts as amendments to the island's fiscal turnaround blueprint, which it approved in March.
At the time, Rossello told Reuters he didn't see "any way I can reduce pensions of people already having a hard time."
He also said he was confident he could avoid the furloughs by meeting cost-saving benchmarks in other ways. (http://reut.rs/2wD1AQO)
On Aug. 4, the board reaffirmed both measures, saying the benchmarks had not been achieved and furloughs would be triggered.
Rossello, the same day, said, "I do not accept nor will I execute the furlough," and has since argued that the measures, as amendments, are not enforceable parts of the turnaround plan.
(Reporting by Nick Brown; Editing by Cynthia Osterman and Paul Simao)