Sicily bridge project sinks in Italy budget mire

* Bridge plan dates back to Roman times

* Berlusconi backed plan, critics called it wasteful

By Danilo Masoni

MILAN, Feb 26 (Reuters) - Italy's government dashed the latest dreams of building a bridge linking Sicily to the mainland on Tuesday, scrapping the multi-billion-euro project because of tight budgets.

The decision to block the controversial plan, strongly backed by right-wing leader and media magnate Silvio Berlusconi, comes one day after a general election produced no clear winner and set Italy on course for political paralysis.

In a brief statement, the outgoing government of Prime Minister Mario Monti said conditions were not in place to proceed with plans to build the bridge.

Critics of the project - a plan whose origins are traced back to the ancient Romans - said it was a waste of public money and would not spur economic growth.

Backers had said it is the kind of public project that could breathe life into Italy's moribund economy and help to reduce the gap between the poorer south and wealthier north.

A 3.9-billion-euro ($5.10 billion) contract was awarded to an international consortium led by Italy's Impregilo and including Spanish builder Sacyr and Japan's IHI Corp in 2006, when Berlusconi was in power.

Sources close to the consortium said it had started legal action to try to recover up to a billion euros for work already done and revenues the companies would not now receive.

Last December, Italy passed legislation that put the contract on hold, raising protests from builders' association ANCE which cited the move as another example of how uncertain regulation keeps foreign investors away.

Construction work for the 3.3-km (2.1-mile) suspension bridge for cars, trains and pedestrians never got beyond the preliminary stage because of a lack of financial resources and shifting spending priorities under different governments.

Visitors to Sicily from southern Italy have to take a ferry to cross the Strait of Messina.

$1 = 0.7567 euros) (Reporting By Danilo Masoni; Editing by Michael Roddy)