DUBLIN - Bank of Ireland was in talks on Friday with Irish and European authorities over whether Dublin would have to acquire a fresh stake of up to 20 percent in the group by the start of next week.

The European Commission has told the bank and rival Allied Irish Banks to stop paying dividends on shares and interest on some debt pending a verdict on their restructuring plans for state aid.

Ireland has 25 percent indirect stakes in each bank via preference shares and attached warrants, and has the right to get ordinary shares in lieu of coupon payments, which the banks will not be allowed to pay for now because of the EU decision.

The Bank of Ireland's payment date is February 20, which falls on a Saturday, making payment due on Monday.

John Corrigan, chief executive of the National Treasury Management Agency (NTMA), which controls the state shares, said last week the EU had only temporary halted payments so he wanted to wait on payments to see how long it would take to finalize the restructuring plan.

A Bank of Ireland spokesman said the bank's position was still the same as outlined in a statement on January 19.

The bank said in the January 19 statement the government would be entitled to a payment in shares on February 20, or a date in the future, in lieu of a 250 million euro cash dividend due by then and the price would be based on the average price of ordinary stock in the 30 trading days prior to February 20.

However, it said it was in talks with the Department of Finance and the European Commission on the matter.

Those discussions are continuing, a source familiar with the matter said.

The Irish Independent newspaper said on Friday the bank had received legal advice that it would not be able to avoid the payment in stock.

Resolutions passed at a shareholder meeting last year meant the so-called bonus stock had to be issued when the coupon payment fell due, unless a special shareholder meeting decided otherwise, the newspaper said. Such a meeting could not be convened in time for the Monday deadline.

The newspaper said the amount owing was 280 million euros but Bank of Ireland only has to pay 250 million this time because a full year has not elapsed since its bailout last year.

Bank of Ireland's shares were down 3.1 percent lower at 1.26 euros by 1119 GMT, valuing the company at about 1.25 billion euros.

At Friday's price it would have to issue almost 200 million shares to the government, compared with a total of almost 1 billion in issue -- an outcome that, according to analysts, both the bank and the government will want to avoid.

They will try and resolve it, Davy analyst Emer Lang said. We won't know till we hear the final outcome what the position is.

Allied Irish's next payment is due in May.

($1=.7377 Euro)

(Reporting by Andras Gergely; Editing by Jon Loades-Carter)