NEW DELHI (Reuters) -Groups backing millions of small Indian retailers have urged the government to shun Amazon's request to ease strict foreign investment rules for exports, a letter shows, as opposition to a contentious policy change grows.

India currently prohibits companies like Amazon and Walmart from stocking and selling goods directly to consumers, allowing them only to operate a shopping website to connect buyers and sellers for a fee. The restrictions apply to exports, too.

Amazon has been lobbying the Indian government to ease those rules to exempt exports, which would allow Amazon India to buy goods from sellers itself to sell to international customers, Reuters reported last month.

The policy restrictions that Amazon and Walmart face have for years been a sore point between New Delhi and Washington, which are also currently struggling to strike a trade deal.

Switzerland-based labour union UNI Global and over 30 groups of Indian farmers and retailers representing millions of people wrote to India's commerce ministry on September 1, arguing that allowing Amazon to directly procure products poses risks to the businesses of smaller players given the financial firepower of the U.S. firm.

"Amazon's direct procurement for exports would give it an unrivalled capacity to undercut these groups through predatory pricing," the letter said.

India's trade ministry and Amazon did not respond to a Reuters request for a comment.

Sources familiar with the matter told Reuters the government was still deliberating and no final decision had yet been reached.

India's antitrust regulator last year found that Amazon breached competition laws by giving preference to select sellers and deep discounting of some products - which includes selling them below cost price. Amazon has denied any wrongdoing.

Amazon argued during a closed-door meeting last month with Indian officials that allowing it to directly export products would benefit small sellers who will get Amazon's help in custom clearance processes and have wider access to international markets.

Amazon and Flipkart are leading players in India's e-commerce market which is set to top $345 billion by 2030.