UPDATE 2-Indian govt further delays Cairn-Vedanta deal

* Cabinet refers deal to ministerial panel

* Oil Minister Reddy finds complex issues

* Says decision should not be taken in a hurry

* Cairn shares close down 2.8 percent, Vedanta down 0.8 pct (Adds quotes, stock prices, details)

By Devidutta Tripathy and Nidhi Verma

NEW DELHI, April 6 (Reuters) - Vedanta Resources appeared no closer to winning India's approval for its $9.6 billion deal to buy Cairn Energy's India assets after the government stuck to its stance on royalties and referred the matter to a panel for further review.

The cabinet on Wednesday referred the deal to a panel of ministers after discussing it in a meeting which had been expected to reach a final decision.

The referral further delays the deal, which would be the largest in India's oil and gas sector and could help boost investor sentiment in Asia's third-largest economy.

"All eyes are on this deal -- especially companies considering foreign investment into India. The longer this drags out, the more negative a reflection it has," said Ash Lazenby, an analyst with Liberum Capital in London.

The issue would be considered by the panel only after India's regional elections, which will take at least a month, a government source said.

"There are some complex issues. The cabinet committee felt such a decision should not be taken in a hurry," India's Oil Minister S.Jaipal Reddy told reporters.

Cairn Energy agreed last August to sell a majority stake in Cairn India to Vedanta, but the deal has been delayed due to a dispute over royalty payments by Cairn India's partner, state-run Oil and Natural Gas Corp (ONGC).

SHARED BURDEN

ONGC, which has a 30 percent holding in the Cairn-operated Rajasthan fields in western India, pays 100 percent of the royalties.

India's oil ministry has been pushing to share the royalty burden between ONGC and Cairn India but this is opposed by both Cairn and Vedanta. Any change in the royalty structure would impact valuations and could jeopardise the deal, analysts have said.

"Even after eight months there doesn't seem to be any change in the government's stance ... and if they continue to maintain it to be cost recoverable, then I think the deal may not go through," said K.K. Mital, head of portfolio management services at Globe Capital.

Shares in Cairn closed down 2.8 percent while Vedanta eased 0.8 percent. Cairn has set an internal deadline of April 15 to seal the deal.

Vedanta said it would go ahead with its open offer to Cairn India's minority shareholders as scheduled, reflecting optimism for the deal. It said its offer would open on April 11 and close on April 30.

"It is surprising that they are going ahead with the open offer, because if the government gives a conditional acceptance, then it will be value-destructive for Vedanta," said Deepak Pareek, sector analyst at Mumbai brokerage Prabhudas Lilladher.

Oil minister Reddy said he presented two options to the cabinet: "One was to give conditional clearance, the other was to give clearance while leaving the legal course open to both parties," he said.

ArcelorMittal, the world's top steel maker, has also faced years of delays in building several plants in India and some analysts say regulatory uncertainties threaten to taint India's attractiveness for foreign firms eager for a slice of its booming $1.3 trillion economy.

India in January approved plans by South Korea's POSCO for a $12 billion steel mill after years of delay. (Additional reporting by Prashant Mehra and Sumeet Chatterjee in Mumbai with Clara Ferreira-Marques in London; Writing by Jui Chakravorty; Editing by Aradhana Aravindan and David Holmes)