(Adds comments from Chicago mayor and CFO, adds new statement from American, traffic data)
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 biggest carriers.
But Mayor Rahm Emanuel vowed to move ahead with the project despite opposition from American Airlines Group Inc.
That airline said it cannot sign a new lease needed for the project, citing a provision that gives United Airlines Inc five out of eight gates that all parties had agreed to designate for common use as late as Feb. 8.
"Uniteds last-minute secret deal with the city raises a number of questions and undermines competition and consumer choice," American said in a statement. "We encourage city leaders to fix the lease and ensure competition remains vibrant at OHare."
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."
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.
American Airlines carriers accounted for 35.5 percent of passengers at O'Hare in 2016, versus 44.5 percent for United carriers, according to city data.
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.
Emanuel said the expansion provides a level playing field for competition and that "multiple airlines" are on board with the plan, which he added is moving forward.
"The key thing for us as a city is to make sure we can compete and we're not dependent on any one airline or how O'Hare was structured in the past to compete," he told reporters.
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 that the mayor introduced to the Chicago City Council on Wednesday, along with a proposal to sell up to $4 billion of airport revenue bonds to start financing the project. The new lease would replace an existing 35-year deal that expires in May.
Chicago Chief Financial Officer Carole Brown said the bonds would be paid off with revenue generated by airlines, parking and concessions at O'Hare, as well as federally authorized passenger facility charges. She added that the timing for an initial bond sale would be the last quarter of 2018 at the earliest.
The city has already spent billions of dollars to reconfigure and extend runways at the airport.
(Reporting by Karen Pierog in Chicago Editing by Matthew Lewis)