WASHINGTON (Reuters) - The U.S. Federal Trade Commission is looking for office supply store Staples (>> Staples, Inc.) to improve its offer to divest assets to further its bid to buy rival Office Depot (>> Office Depot Inc), the agency said in court on Thursday.

Arguing for Staples, Diane Sullivan said that the company had made a "significant and substantial" offer to the FTC. The company said earlier this month that it had offered to divest $500 million in commercial contracts.

Arguing for the FTC, Tara Reinhart said at a pre-trial hearing that the FTC had rejected that as inadequate. "We have actually asked them to come back," she said.

The FTC filed a complaint on December 7 aimed at stopping Staples from buying Office Depot, saying that the deal would hurt big customers who want nationwide contracts to buy their office supplies. The $6.3 billion deal had been announced in February.

Canada's Competition Bureau has also said that it would challenge the proposed transaction.

The FTC is asking the court for a preliminary injunction so that it can try the case in an internal process. The trial on the preliminary injunction is expected in March with a decision in May, said Judge Emmet Sullivan.

The agency stopped a merger attempt between the same two companies in 1997 but in the 19 years since then, Amazon (>> Amazon.com, Inc.) and other online sellers, which deliver across the United States, have emerged as competitors, while chain stores such as Costco (>> Costco Wholesale Corporation) and Wal-Mart Stores Inc (>> Wal-Mart Stores, Inc.) have further crowded the market.

Staples was emboldened to try again for Office Depot after that chain succeeded in buying No. 3 OfficeMax in November 2013 with no divestitures.

The case at the U.S. District Court for the District of Columbia is Federal Trade Commission v Staples, Inc. It is case No. 15-2115.

(Reporting by Diane Bartz; Editing by Susan Heavey and Alan Crosby)

By Diane Bartz