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UPDATE 1-Indian finance minister Jaitley tells Modi he wants to step aside due to ill health

Manoj Kumar

due to ill health@ (Adds details and background throughout)

NEW DELHI, May 29 (Reuters) - Arun Jaitley, India's finance minister, has asked Prime Minister Narendra Modi not to give him a ministerial position in the new government due to ongoing health problems.

Jaitley's absence will leave Modi without one of his most important lieutenants as he begins his second five-year term in power following the Bharatiya Janata Party's landslide election victory earlier this month.

Jaitley said in a letter to Modi, issued to the media on Wednesday, that he had faced serious health challenges in the last 18 months and needed to recuperate.

"I should be allowed a reasonable time for myself, my treatment and my health, and, therefore not be a part of any responsibility, for the present, in the new government," Jaitley said in the letter.

A spokesman of prime minister's office declined to comment on Jaitley's letter to Modi.

Aside from holding one of the most important positions in government, Jaitley, a 66-year-old lawyer-turned politician, was also the cabinet's main communicator with the media, one of the ruling party's most articulate voices in parliament, and was a strong campaigner in the recent election despite his poor health.

A diabetic, Jaitley's health issues became worse after he had a kidney transplant in May last year. He skipped presenting an interim budget in February as he was in hospital in the United States receiving cancer treatment.

Last week, Reuters reported that he was unlikely to continue in his current role.

Finance ministry officials said Jaitley had been largely working from home for the past three weeks while undergoing treatment.

Senior government officials said replacing Jaitley would be difficult, as few BJP leaders possessed appropriate experience for the finance portfolio.

With India's economy slowing and unable to create enough jobs for the millions of youth entering the labour market every year, any new finance minister faces the task of finding funds for an additional stimulus without blowing out the budget deficit.

Modi, who will take the oath of prime minister on Thursday for his second term, could assign Railways and Coal Minister Piyush Goyal or bring in someone from outside the party to fill the post.

Goyal, 54, presented the interim budget for Jaitley in February and has filled in for him before. The new government is expected to present a full budget once it takes office.

(Additional reporting by Aftab Ahmed; Edited by Martin Howell & Simon Cameron-Moore)