BRUSSELS, May 16 (Reuters) - Lufthansa's bid

to buy a stake in Italian peer ITA is set to be blocked by EU

antitrust regulators unless there is a substantial improvement

to remedies to address competition concerns, people with direct

knowledge of the matter said on Thursday.

Remedies offered last week are insufficient to allay the

European Commission's concerns that the deal may reduce

competition in short-haul and long-haul routes connecting Italy

to other countries and also reinforce ITA's market power at

Milan Linate airport, the people said.

There is still time for Lufthansa to offer more remedies,

they said, ahead of the Commission's July 4 decision.

The EU competition watchdog and Lufthansa declined to

comment.

Rome is sticking to its plan to sell a 41% stake in ITA to

Lufthansa and is not considering other options as the EU

investigation into the deal is still ongoing, a senior Italian

government official told Reuters earlier this week.