UPDATE 1-Gate dispute clouds expansion plan for Chicago's O'Hare Airport

(Adds United statement, paragraphs 5 and 6, mayor's office statement, paragraphs 8-9, other details)

CHICAGO, Feb 28 (Reuters) - A new $8.5 billion plan to expand Chicago's O'Hare International Airport ran into turbulence on Wednesday due to a gate dispute involving the airport's two major carriers.

American Airlines Group Inc said it cannot sign a new lease needed for the project, citing a "secret provision, inserted at the last minute" that gives additional gates to United Airlines Inc.

"The United gate deal would undermine competition, allowing the largest airline at OHare to expand its size advantage for years into the future," American said in a statement. "Thus, the United gate deal creates a clear winner, United, and clear losers: namely, competition, Chicago travelers and American Airlines."

American added that it was prepared to compromise and would sign the lease if the provision were dropped.

Chicago-based United called American's claim "disingenuous" and countered that a deal with the city for five additional gates was reached in 2016.

"Our agreement with the city for five additional gates was made more than 18 months ago in response to Americans deal with city for five additional gates," United said in a statement. "American has been aware of our agreement for over a year and has worked to block the implementation at every opportunity."

The eight-year expansion plan calls for replacing one of O'Hare's existing terminals with a new global terminal, where United and American would be relocated. Other terminals would be renovated to expand gate capacity. Construction is scheduled to begin next year.

Adam Collins, a spokesman for Mayor Rahm Emanuel, said the plan gives every airline a growth opportunity.

"This is about positioning Chicago to compete with Beijing, Paris and Abu Dhabi, not about positioning in the decades-old competition between two airlines," Collins said in a statement.

Emanuel, who is slated to introduce the project at a city council meeting on Wednesday, is seeking up $4 billion of airport revenue bonds to start financing it.

O'Hare is the world's second-busiest airport in terms of take-offs and landings after Atlanta's HartsfieldJackson International Airport, according to an Airports Council International 2016 ranking.

The plan marks the biggest terminal expansion in O'Hare's history, which dates back to the mid-1940s. It relies on a new use and lease agreement with airlines to replace an existing 35-year deal that expires in May. Chicago has already spent billions of dollars to reconfigure and extend runways at the airport. (Reporting by Karen Pierog in Chicago Editing by Matthew Lewis)