General Motors' loss-making carmaker Saab Automobile said on Friday it would seek legal protection from creditors to allow it to restructure and seek new funding.

Faced with mountainous debts, parent GM is itself restructuring, and in a plan submitted to the U.S. Treasury this week it said loss-making Saab would become an independent business as of January 1, 2010.

Saab made an operating loss of 2.19 billion Swedish crowns in 2007, according to regulatory filings.

We explored and will continue to explore all available options for funding and/or selling Saab, and it was determined a formal reorganization would be the best way to create a truly independent entity that is ready for investment, Saab Managing Director Jan-Ake Jonsson said in a statement.

Saab said funding for the restructured company will need to be secured during the reorganization process and will be sought from both public and private sources.

Swedish daily Dagens Industri said on Friday that Saab parent GM is prepared to pump in $400 million to help make its Saab car unit profitable if the Swedish state guarantees a further loan of $590 million to Saab.

Part of the money would be used to launch new models and part to cover the loss made by Saab last year. The goal is to reach annual sales of 120,000-130,000 vehicles, which would make the firm profitable by 2011 or 2012, Dagens Industri said, quoting unnamed sources.

Many analysts believe Saab would need much more money pumped into it to turn it around.

A reorganization filing, which is an alternative to an outright bankruptcy filing, would be made with a Swedish court, after which the viability of continuing operations would be assessed.

(Editing by Will Waterman)