Italy's Air One said on Thursday it is suing over Alitalia's decision to pursue takeover talks exclusively with Air France-KLM, challenging the latest effort to sell the state-controlled carrier.

"We don't want to halt the (Air France-Alitalia) talks. We also want to be able to present a binding offer," the source, who declined to be named said.

Air France-KLM started eight weeks of exclusive talks on January 15 to take over Alitalia, despite fierce protests from rival bidder Air One, Italy's second-largest domestic airline.

Alitalia is losing more than EUR1 million euros a day and executives warn that, without a merger by the middle of this year, it will need a cash injection of at least EUR750 million (USD$1.11 billion) to keep flying solo.

Air One, Alitalia's closest domestic rival, said in a statement that it filed the lawsuit with a regional court in a bid to bring "transparency" to takeover process.

"The appeal... is the only instrument we have to know the reasons why there weren't more transparent and non-discriminatory criteria" used in the bidding, it said.

The legal twist could add uncertainty to the sale following the resignation of Prime Minister Romano Prodi, who backed the exclusive talks with Air France-KLM for the state's controlling 49.9 percent stake.

The head of Intesa Sanpaolo, which is backing the Air One bid, said Alitalia's sale was now up in the air.

"There are still many questions open so we don't think the game is over. Everything still has to be sorted out," Intesa Sanpaolo Chief Executive Officer Corrado Passera told Corriere della Sera newspaper in an interview.

The Financial Times said Air One could relaunch its bid and quoted people close to the small domestic carrier saying it was expected to announce new partners.