Chinese steel and iron ore group Baosteel has proposed to pay 1 billion pounds ($1.6 billion) for a 30 percent stake in Anglo American's huge Minas Rio iron ore mine in Brazil, according to a report on Sunday.

The Observer said any deal with Baosteel could help Anglo fend off suitor Xstrata, which last week was told to make a formal bid for Anglo by October 20 or walk away for six months.

A spokesman for Anglo declined to comment on the Observer report but reiterated the firm would consider the introduction of an investor to Minas Rio as it moves to the second phase of development of the mine.

(Reporting by Victoria Bryan; editing by John Stonestreet)

($1=.6289 POUND)