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Up against Germany, EU bid for gas talks with Moscow falters

* New EU legal opinion says no need for talks

* Adds fodder to Germany's opposition to EU involvement

* EU fears Ukraine to lose Russian gas transit fees

BRUSSELS, Oct 11 (Reuters) - The European Commission's attempts to intervene in Russia's plans for a new gas pipeline to Germany have been dealt a blow by legal advice, according to EU diplomats and a document seen by Reuters.

Brussels, backed by some EU member states, is concerned the Nord Stream 2 pipeline will increase the blocs reliance on Russian gas and cut gas transit revenues for Ukraine, damaging its fragile economy. So the Commission is seeking a mandate from EU members to hold talks with Russia.

But Germany, the EU's biggest economy and the end-point for the pipeline planned to deliver 55 billion cubic meters of gas a year, believes Brussels should not get involved.

According to an opinion by the legal service of the European Council, a body where EU nations meet, the Commission's proposed mandate for talks with Russia failed to establish "any legal need to negotiate" and contained "mere political arguments."

The opinion also took aim at the Commission's concern that the pipeline would increase dependence on Russia's state-owned gas firm Gazprom. This "is at the very least counter intuitive," the document, dated Sept. 27, said.

"It pretty much kills the mandate," one EU official said.

With the opinion suggesting the Commission may need unanimous backing from EU members for its plan, another EU official said: "I see very little room for moving forward, and in the meantime, the pipeline will be built."

Eastern European and Baltic Sea states fear the project strengthens Russia's hand, while Germany and other beneficiaries in northern Europe see a commercial payoff.

Both sides, however, fear the potential loss for Ukraine of some $2 billion per year of Russian gas transit fees will undermine its war-torn economy, complicating the bloc's investment in reforms there.

Many see the project at odds with sanctions Western countries have imposed on Moscow over its role in the conflict in Ukraine.

"Our main concern is how to stabilise Ukraine," said an EU diplomat. But he added: "Apart from Russia, there aren't many gas-rich countries left close to Germany ... Nord Stream 2 is unsavoury, but the right thing to do."

The opinion, the latest legal tussle over the pipeline, will make it harder for the EU's 28 members to find common ground when they debate the issue on Thursday, EU sources said.

Germany has seized on it as proof EU regulators should not meddle, while others accuse Berlin of strong-arming EU institutions.

"Our German colleagues are crowing right now," said an EU diplomat, whose country backs the Commission bid.

Another was defiant: "We are not rolling over yet," the diplomat said. "This is not a legal issue but about taking care of geopolitics."

Poland, one of the pipeline's fiercest opponents, plans to put forward its own legal opinion this week, one of its diplomats said, dismissing the Council document as "just an opinion."

Within a bloc still reeling from Brexit, EU officials say there is little appetite for divisive initiatives and the Commission will not move ahead without a strong mandate. It is also wary of any future court challenge, they added.

'UP TO MERKEL'

German energy groups Uniper and Wintershall are not alone in having a stake in the 1,225 km (760 mile) pipeline, which will pump Russian gas via the Baltic Sea.

Austria's OMV, Anglo-Dutch group Shell, and France's Engie are also invested.

Several EU diplomats said German counterparts were under pressure to sweep away an issue that could interfere with Chancellor Angela Merkel's efforts to build a new coalition, including with the Green party, after Sept. 24 elections.

Merkel says she sees no need for the EU to get involved, and her government has sought assurances from Moscow that it will keep pumping gas through Ukraine after its gas transit contract expires in 2019.

Those in Brussels who do not want to see the EU bid fail worry the bloc will loose leverage to seek such assurances.

"Then it will be up to Merkel to negotiate Ukraine transits with Russia," one EU official said. (Reporting by Alissa de Carbonnel zAdeCar; Editing by Mark Potter)