The stake will be in SD Steel Rizhao Co Ltd, based in the northern Chinese city of Rizhao, and will increase Baosteel's influence in the northern Chinese market, Baosteel said in a filing to the Shanghai Stock Exchange.

Baosteel, a unit of state-owned China Baowu Group, said the deal is pending approval from state asset regulating authorities.

Shandong Iron & Steel Group is backed by the government in the northern province of Shandong.

($1=7.16 yuan)

(Reporting by Roxanne Liu and Kane Wu; Editing by Mark Potter and Neil Fullick)