The European Bank for Reconstruction and Development (EBRD) said its board of directors has approved a direct loan of up to 500 million euros ($583 million) for TAP.

TAP, the final leg of a $40 billion (30.28 billion pounds) project called the Southern Gas Corridor to transport gas from central Asia to western Europe, is a cornerstone of the European Union's energy security policy to wean the bloc off Russian gas supplies.

The European Investment Bank approved a 1.5 billion euro loan earlier this year for TAP and further contributions from the export credit agencies of France, Germany and Italy are currently under consideration, the EBRD said in a statement after the board meeting.

EBRD directors were asked to approve a total loan amount of up to 1.2 billion euros, sources familiar with the matter said. Apart from the direct loan, the rest would be a syndicated loan. However, the exact amount of that will depend on the success of syndication.

The EBRD said the pipeline will make a "significant contribution" to the diversification of Europe’s energy supply.

"It will also help make energy supply for consumers more reliable, as well as achieve significant carbon dioxide reductions by providing a cleaner fuel, as compared to coal," it added.

With the first delivery of gas expected by 2020, it will be the first non-Russian gas pipeline to supply Europe since the Medgaz link which started to deliver gas from Algeria to Spain in 2011.

TAP will transport up to 10 billion cubic meters of natural gas per year from the Azeri Shah Deniz II field in Azerbaijan to Italy by 2020.

ITALIAN BACKING

Italy's environment minister, however, said last month the project was under review, raising fears among TAP's developers that Rome would demand major changes to the pipeline's route, which is set to land at a seaside resort in southern Italy. Italy's new government, a ruling coalition of anti-establishment parties, has said the pipeline is an environmental danger and unnecessary given Italy's excess gas capacity.

Sources familiar with the matter told Reuters that despite the comments made recently, Italy supported the project at the board meeting.

TAP shareholders include oil group BP, Italy's Snam, Belgium's Fluxys and Spain's Enagás.

The European Union's energy chief said the EU has been arguing the case for TAP with the new Italian government.

"We are ready to engage and provide all the good arguments that this project is good for Italy and good for the European Energy Union," European Commission Vice-President Maros Sefcovic told Reuters.

The United States also supports the Southern Gas Corridor as it reduces Europe's reliance on Russian gas.

Some environmental groups have criticised both the EBRD and EIB's funding of TAP due to the environmental impact of the pipeline and human rights issues in Azerbaijan.

(Reporting by Nina Chestney in LONDON, Alissa de Carbonnel in BRUSSELS and Stephen Jewkes in MILAN, editing by Emelia Sithole-Matarise)

By Nina Chestney and Stephen Jewkes