South Africa's labor federation COSATU is trying to halt a planned multi-billion tie-up between MTN and India's Bharti Airtel but the Treasury wants a deal, sources close to the matter said.

The merger would create the world's third-largest mobile phone group by subscribers but is subject to an end-September deadline. The firms have extended talks twice before.

COSATU is quietly putting pressure on government not to allow this transaction, a source close to the MTN and Bharti transaction, told Reuters.

They don't want to repeat the bitter pill that happened with the Vodacom and Vodafone deal.

South Africa's top mobile operator Vodacom was sold to Britain's Vodafone and listed on the Johannesburg bourse in May. That deal was almost blocked by COSATU, which feared job losses.

The source said the powerful decision-making national working committee of the ruling African National Congress (ANC), was divided on whether the deal should be halted or approved.

There is an internal standoff. A decision has not yet been taken. It's a war of bull dogs, the source said, adding that the Treasury wanted the capital inflow the deal would bring.

Treasury is saying: 'We don't care, we want the deal to be approved'.

The ANC was not immediately available to comment.

COSATU spokesman Patrick Craven said he could not make specific comments as the story was based on anonymous sources but added that the federation would examine the deal to ensure workers interests were protected.

A COSATU source said, however, that the federation was holding its national congress from Monday, and the MTN/Bharti deal was likely to be on the agenda.

We have to discuss that matter, even if its MTN or any other deal that is under hand, the source said, declining to be named. This crass materialism is exactly what we are trying to deal with. That's what seems to determine the agenda and the trajectory.

On Sunday South Africa's communications minister, Siphiwe Nyanda, expressed caution over the proposed transaction and said MTN should remain a local company.

South Africa's Treasury said on Monday it was focusing on the regulatory approval sought by MTN for the Bharti deal.

An MTN spokeswoman said the company was not prepared to comment on speculation.

(Editing by Marius Bosch and Lin Noueihed)