DETROIT - Chrysler continues to make progress in its efforts to complete a proposed alliance with Fiat SpA and qualify for additional government loans, Chrysler Chief Executive Bob Nardelli said on Wednesday.

The U.S. Treasury Department has reached an agreement with Chrysler's largest creditors to cancel $6.9 billion of debt in exchange for $2 billion in cash, Nardelli confirmed in a memo to staff obtained by Reuters.

If approved, it would clear a significant hurdle on our continuing journey toward long-term success, but the proposed agreement still needs to be approved by all of the secured lenders, Nardelli said in the memo.

He also said the leadership of the United Auto Workers union unanimously approved a tentative new labor agreement with the automaker and has sent the deal to local union members for a ratification vote on Wednesday.

Chrysler's U.S. sales so far in April are trending similar to the overall U.S. industry, Nardelli said.

(Reporting by Soyoung Kim, editing by Dave Zimmerman)