PARIS (Reuters) - Chinese, Kazakh and Japanese firms are in talks to invest in Areva (>> Areva), according to a French government source, a partnership deal that could help persuade regulators that a rescue plan for the nuclear group is not illegal state aid.

The source said talks are set to end in two to three weeks.

A second industrial source said that once the partnership investment deal is sealed, the European Commission will be ready to approve Areva's government-led restructuring by the end of December ahead of a planned 5 billion euro (4.35 billion pounds) mainly state-funded capital increase early next year.

French online news website BFM Business, citing sources close to the group, reported on Tuesday that China National Nuclear Corporation (CNNC), Mitsubishi Heavy Industries (>> Mitsubishi Heavy Industries Ltd) and Kazakhstan's Kazatomprom were each set to buy an 11 percent stake in Areva.

Japan's MHI is a long-time Areva industrial partner with whom Areva is developing a new reactor model. Kazatomprom is a major uranium miner, with which Areva has a mining joint venture, while CNNC also has partnerships with Areva under which it may build a nuclear fuel recycling plant in China.

BFM reported that the three foreign investors would inject 400 million euros each, that they would be able to chose board members, and that the French government's stake in Areva would fall to 67 percent.

Areva declined to comment on the BFM Business report.

CNNC, Mitsubishi and Kazatomprom were not immediately available for comment.

EDF CONNECTION

The three-way investment would be for a one-third stake in Areva "NewCo", the as yet unnamed uranium mining and nuclear fuel business of Areva, which will be split off when the rest of the firm is absorbed by EDF (>> E.D.F.), the state power utility, under the rescue plan.

A major global player in the nuclear fuel industry, NewCo is set to get three billion euros of the five billion euro capital injection in order to repay debt and restore equity wiped out by years of losses.

The nuclear reactor building unit of the virtually bankrupt state-owned group, Areva NP, will be bought by fellow state-owned utility EDF for 2.5 billion euros, which signed a binding takeover deal last week.

A third part of Areva - Areva SA - will get a 2 billion euro capital increase and will hold the troubled Olkiluoto reactor construction project in Finland and other legacy activities that are earmarked for sale, including Areva's 50 percent state in Areva-Gamesa (>> Gamesa Corporacion Tecnologica SA) offshore wind joint venture Adwen, and Areva's military nuclear business.

BFM Business also reported that the state, which owns 87 percent of Areva, would buy out Areva's current minority shareholders.

They include the Kuwait Investment Authority (which holds 4.82 percent), EDF (2.24 percent), Areva staff (1.23 percent) and oil group Total (0.95 percent), according to ThomsonReuters data. Then the company would be delisted.

Once the three foreign investors sign the deal to buy their one-third stake in Newco, the European Commission is expected to give the green light for Areva's restructuring and capital increase in which the French state will contribute the lion's share.

Without the participation of third-party investors in the capital increase, the European Commission would qualify the injection of French state funds as illegal state aid.

A source familiar with the situation said the government hopes to get EU clearance for the deal at the latest before Christmas.

Areva chairman Philippe Varin is set to address a French parliament committee hearing on Wednesday.

(Reporting by Jean-Baptiste, Benjamin Mallet, Geert De Clercq and Maya Nikolaeva in Paris; David Stanway in Shanghai, and Timothy Kelly in Tokyo; Writing by Geert De Clercq; Editing by Andrew Callus and Alexandra Hudson)

By Jean-Baptiste Vey and Geert De Clercq