Rheinmetall, which was initially dropped from the race due to its unattractive offer, has been invited back to the negotiating table, the people said.

They added Rheinmetall was expected to vie with buyout funds Carlyle and EQT for the maker of transmissions used in tanks and other heavy vehicles. Renk also makes standard gears, gears for ships and slide bearings.

It is unclear whether Triton, a previously reported suitor, is still in the process, while KKR has dropped out, the people said.

Volkswagen, Rheinmetall and the other suitors declined to comment.

Bids could give Renk an enterprise value of around 700 million euros (£601.36 million), people close to the matter have said previously.

Renk is 76%-owned by Volkswagen's main shareholder, Porsche SE, with the rest of the shares widely held. It currently has a market value of 741 million euros.

Renk's large exposure to the defence industry, which it supplies with transmissions for tanks and gear units for navy ships, will make it hard for buyers headquartered outside NATO countries to acquire the business, the sources said.

(Reporting by Arno Schuetze and Jan Schwartz; Editing by Mark Potter)