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UPDATE 1-White Tale takes Clariant stake above 20 pct- source

(Adds further details and background)

ZURICH, Oct 26 (Reuters) - Activist investors seeking to block Clariant's $20 billion merger deal with Huntsman Corp have increased their stake in the Swiss specialty chemical maker to above 20 percent, triggering a disclosure filing, a source close to the matter said.

White Tale Holdings, which is backed by two hedge funds, had told a Swiss newspaper earlier this month it had "significantly more" than 15 percent of Clariant shares and wanted to increase its stake.

"We already own more than 15 percent and we're not done buying," White Tale investors David Millstone and David Winter had told Finanz und Wirtschaft in a joint interview.

White Tale, the biggest investor in Clariant, has repeatedly declined to respond to Reuters enquiries about its plans.

After years of mutual approaches, Clariant and Huntsman struck the deal in May that would give Clariant 52 percent of the combined entity and targets around $400 million in annual cost synergies.

But doubts have been growing among some of Clariant's investors over whether it will be able to get the deal done in the face of White Tale's opposition.

Baader Helvea analyst Markus Mayer has written that a 20 percent stake would be enough to derail the deal given that only around 80 percent of Clariant shares have in the past been registered with the company, making them eligible to vote.

The deal needs two-thirds majority support from Clariant shareholders to go through.

Clariant declined to comment, reiterating only that a large majority of shareholders still backed the deal.

Calling themselves "long term-oriented investors" who are "here to stay", Millstone and Winter oppose the planned merger that they say significantly undervalues Clariant and overvalues Huntsman.

The Swiss chemical manufacturer should instead sell its plastics and coatings business, they have said, and reinvest the proceeds in acquisitions within the higher-margin specialty chemicals businesses. (Additonal reporting by John Miller; Editing by Michael Shields, Greg Mahlich)