LONDON, March 11 (Reuters) - Thames Water, Britain's

biggest water supplier, faced another court battle on Tuesday as

a group of its junior creditors started a legal challenge over a

3 billion pound ($3.9 billion) debt lifeline necessary to keep

it afloat.

The company is at the centre of a public backlash against

the water industry. Mismanagement of Thames Water is blamed for

sewage pollution in rivers, and for an 18 billion pound debt

pile which has left it on the brink of financial ruin.

Thames Water avoided a state rescue in February when it

secured court approval for the new loans, but a grouping of

junior creditors and a public interest group have appealed. The

court will now sit until Thursday.

Both groups object to the high cost of the new loans and

want Thames Water to be put into the government's Special

Administration Regime, a form of temporary nationalisation,

which would keep water services operating before the company is

eventually sold.

Mark Phillips, the barrister representing the junior

creditors, said on Tuesday that the debt lifeline gave senior

creditors, which include Abrdn, Apollo Global Management,

Elliott Investment Management, Invesco ( IVZ ), M&G and PIMCO, "valuable

additional rights", disadvantaging his clients.

Special administration would treat "all creditors equally",

the group said in legal documents.

Lawmaker Charlie Maynard is leading the public interest

group's appeal, which is focused on the environment and ensuring

value for money for Thames Water customers and taxpayers.

Arguments released on its behalf state that under the debt

lifeline, the "terms and cost are much worse for the Thames

Water Group...than rescue by special administration".

Thames Water said the debt lifeline plan remained its best

option, and would not financially affect taxpayers or customers.

"It allows us to continue to invest in our network to

improve critical infrastructure for our customers and the

environment," a company spokesperson said.

The government has repeatedly said it wants Thames Water to

avoid administration and is focused on reforming Britain's

privatised water sector to improve its environmental

performance.

But as the legal battle rumbles on, there are worries that

Thames Water could run out of money. Following the outcome of

the appeals, expected in the coming weeks, either party could

decide to take the matter to the Supreme Court.

Environment minister Steve Reed said on Monday the

government was ready to step in if needed.

($1 = 0.7734 pounds)