By Giuseppe Fonte

Italy has approved a decree offering state guarantees for a 6.3-billion euro ($7.1 billion) loan to Fiat Chrysler's (FCA) Italian unit, the Treasury said on Wednesday, paving the way for the largest crisis loan to a European carmaker.

The formal announcement follows an endorsement by the country's audit court and brings to an end a lengthy approval procedure for the loan, which has drawn criticism in Italy.

By providing state support, Rome "aims to preserve and strengthen the Italian automotive supply chain," Economy Minister Roberto Gualtieri said in a statement.

FCA's Italian division has tapped Rome's COVID-19 emergency financing schemes to secure a state-backed, three-year facility to help it weather the crisis triggered by the coronavirus pandemic. The aid will also help Italy's broader car sector, in which about 10,000 businesses operate.

"100% of the money this facility provides will be directed to our Italian business ... as we continue a transformative shift to a new electric and hybrid powered future," said Pietro Gorlier, FCA's chief operating officer for Europe, the Middle East and Africa.

The loan will be disbursed by Italy's biggest retail bank Intesa Sanpaolo, which has already authorised it pending the approval of guarantees the government will provide on 80% of the sum through export credit agency SACE.

The request for state support sparked controversy because FCA is working to merge with French rival PSA and the holding company for the Italian-American carmaker is registered in the Netherlands. FCA's global brands include Fiat, Jeep, Dodge and Maserati.

Gualtieri said FCA would have to meet commitments on investments and jobs, but declined to say whether the Treasury had imposed conditions affecting FCA's planned 5.5 billion euro extraordinary dividend, a key element in the merger with PSA.

Italian politicians have called the dividend into question, although it should be compatible with the terms of the financing, because it is not due until 2021 and would be paid by FCA Italy's Dutch parent company, Fiat Chrysler Automobiles NV.

(Reporting by Giuseppe Fonte; additional reporting by Ankit Ajmera in Bengaluru; Editing by Alex Richardson, Mark Potter and Maju Samuel)