Nov 4 (Reuters) - Russian oil producer Lukoil has declined an offer to sell its refinery in Sicily, Italy, to U.S. private equity firm Crossbridge Energy Partners, after it questioned the firm's ability to pay for the deal, the Financial Times reported on Friday, citing people close to the talks.

Commodities trading giant Vitol was willing to offer credit to Crossbridge to fund the deal at a rate better than the U.S. fund could get from a traditional lender as it stood to benefit from supplying crude to the Italian refinery, the newspaper said.

The report added that Lukoil remains reluctant to sell its Italian refinery to Crossbridge, a decision that could risk thousands of jobs as well as potentially bankrupt the refinery.

Lukoil's ISAB refinery in Sicily accounts for around 20% of Italian refining capacity. ISAB has been forced to rely solely on Russian oil after creditor banks halted financing and stopped providing guarantees needed to buy oil from alternative suppliers.

Though Lukoil has not been hit by international sanctions against Russia, ISAB's suppliers and creditor banks have been wary of dealing with a Russian entity.

The Italian government has been working on ways to keep Lukoil's refinery in business despite new sanctions against Russia kicking in next month, as Rome tries to buy time to agree the sale of the plant.

The FT report further added that the refinery asked a number of banks for about 700 million euros ($695.59 million) in financing, although banks have been hesitant on taking on the risk.

Publicly-backed lender SACE could back part of the loan to ISAB, FT said, citing sources.

Lukoil and Crossbridge Energy did not immediately respond to Reuters' request for comment. ($1 = 1.0063 euros) (Reporting by Rishabh Jaiswal in Bengaluru; Editing by Chris Reese and Daniel Wallis)