DUESSELDORF, Germany (Reuters) - Lufthansa (>> Deutsche Lufthansa AG) has rejected demands by pilots to discuss via mediation its plans to expand its low-cost operations, the German flagship carrier said on Friday, drawing new battle lines that could herald further costly strikes.

Lufthansa has been embroiled in a dispute with its pilots that has led to 10 walkouts this year, costing the airline more than 160 million euros ($196 million) while it struggles to lower its cost base to cope with fierce competition.

The pilots want Lufthansa to maintain a scheme that allows them to retire at 55 and keep receiving up to 60 percent of their salary until regular pension payments kick in at 65.

They also oppose Lufthansa's plans to start low-cost long-haul flights, fuming at the way management is pushing through low-cost expansion in Europe by using pilots from a unit that is not part of the collective wage agreements at the Lufthansa or Germanwings brands.

The Vereinigung Cockpit (VC) pilots union has said it would only accept an offer by Lufthansa to enter mediation talks if they included all areas of its dispute with management.

A spokesman for Lufthansa said on Friday that the carrier was willing to expand talks beyond just early retirement benefits but said the low-cost expansion plans were not up for discussion.

"This shows that Lufthansa is not interested in pacification," VC board member Joerg Handwerg said, adding the union would decide early next year whether to accept Lufthansa's new proposal or call for more industrial action.

Shares in Lufthansa extended losses to trade 2.9 percent lower at 13.62 euros by 11:53 a.m. on Friday. They slid earlier in response to peer Air France-KLM's (>> Air France-KLM) third profit warning since July.

(Reporting by Anneli Palmen; Writing by Maria Sheahan; Editing by Christoph Steitz/Mark Heinrich)

Stocks treated in this article : Air France-KLM, Deutsche Lufthansa AG