DUBLIN (Reuters) - Aer Lingus's (>> Aer Lingus Group Plc) board is set to recommend an improved 1.36 billion euro (£1 billion) takeover offer from International Consolidated Airlines Group (IAG) (>> International Consolidated Airlines Grp), Irish national broadcaster RTE said.

The Irish airline said on Monday it was considering a third proposal in six weeks by the owner of British Airways. Without quoting any sources, RTE said it understood Aer Lingus would issue a statement when the stock exchange opens on Tuesday.

A spokesman for Aer Lingus said he was not able to confirm or deny the report.

The new proposal is worth 2.55 euros per share, up from a previous 2.40 euros, and includes a cash offer of 2.50 euros per share and a cash dividend of 0.05 euros per share.

For IAG a successful takeover would give it more of the highly valuable but scarce take-off and landing slots at London Heathrow, BA's home base and a major European hub for international flights.

But it is also conditional on irrevocable commitments from the Irish carrier's two largest shareholders, budget airline Ryanair (>> Ryanair Holdings plc) and the Irish state.

Ryanair, which still holds 29.8 percent after its takeover attempts were blocked and currently faces a regulatory order to cut its stake to 5 percent, said last week it would give due consideration to any offer.

But the government, which holds 25.1 percent, is facing mounting political pressure not to sell.

Dublin, which had sought to sell its stake in Aer Lingus as part of the country's bailout by the EU and IMF in 2010 before postponing the plan, has been urged by the two main opposition parties to rule out any sale, raising the stakes just over a year out from elections.

"The government must act to ensure that it does not allow Aer Lingus management to cave in to any bid from IAG. The fallout from any sale is being dramatically underplayed," Timmy Dooley, transport spokesman for the opposition Fianna Fail party, said in a statement.

Transport Minister Paschal Donohoe has said the government would take "huge care" in evaluating any offer for the 79-year-old former flag carrier, and examine how a merger would affect Aer Lingus workers, its brand and both connectivity and competition for air routes out of Ireland.

Aer Lingus's main trade union IMPACT said that a takeover could lead to the loss of up to 1,200 jobs, a quarter of the workforce.

Merrion Stockbrokers analyst David Holohan said IAG, whose Dublin-born chief executive Willie Walsh was previously head of Aer Lingus, where he started his career as a pilot, and is currently also chairman of Ireland's debt agency, would be able to satisfy the concerns.

Others were less certain.

"We are concerned about the politics of this deal and the potential for IAG to get dragged into prolonged and distracting negotiations," Cantor Fitzgerald analyst Robin Byde said in a note.

Shares in IAG rose as much as 3 percent to 554 pence in early trade on Monday, the highest level since the group was formed in January 2011. Aer Lingus closed 0.9 percent higher at 2.37 euros at 0930 GMT.

(Additional reporting by Paul Sandle in London; Editing by Greg Mahlich and Dominic Evans)

By Padraic Halpin