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UPDATE 1-Macron's Europe speech draws mixed reaction in Berlin

(Adds further reactions)

BERLIN, Sept 26 (Reuters) - French President Emmanuel Macron's proposals to strengthen the European Union drew mixed reaction in Germany, with a lawmaker from Chancellor Angela Merkel's Bavarian allies warning against turning the bloc into an "unlimited transfer union".

Macron offered a sweeping vision for a renewal of Europe in a speech on Tuesday, calling for the EU to cooperate more closely on defence, immigration, tax and social policy, and for the single currency bloc to have its own budget.

He was speaking two days after the German election in which Merkel's alliance underperformed, limiting her freedom to manoeuvre on Europe.

The Greens, a potential coalition partner for Merkel, welcomed Macron's proposals as the French president was speaking.

"Germany should take Macron's extended hand and push Europe forward, with other partners," Cem Ozdemir, co-leader of the left-leaning Greens, told reporters in Berlin.

"It's an important signal to us in Berlin that Macron makes his proposals directly after the German election. Because only if Paris and Berlin work closely together and have the courage to implement concrete reforms, can we strengthen Europe."

Ozdemir, seen as a possible foreign or finance minister in Merkel's coalition government, said the euro zone in particular needed reforms to make it resilient against future shocks.

"We need investment in digitization, sustainable technologies and infrastructure, in particular, to ensure long-term investment and create future-proof jobs," Ozdemir said.

But Hans Michelbach, a lawmaker from Merkel's CSU allies, said Macron's ideas were unsuitable to take Europe forward. "They do not lead to a deepening (of the EU) but to a deeper split in the EU," he said.

Michelbach accused Macron of planning to turn the euro zone into an "unlimited transfer union" and to roll back the EU's Stability Pact.

"But these are the wrong lessons from the euro zone crisis," Michelbach said, adding Macron should not be relieved of his duty to bring the French budget deficit in line with the EU's fiscal rules. (Reporting by Sabine Siebold and Michael Nienaber,; Editing by Paul Carrel and Janet Lawrence)