Porsche is free to submit a fresh application for state aid, a German economy ministry official said on Thursday, while Porsche said it was already working with state bank KfW to shape a new bid.

We have asked KfW to inform Porsche that we are not pursuing the application (for a loan), the official said on Thursday on the condition of anonymity.

But Porsche are free to make a new application that would be more in line with KfW's conditions, he said.

Porsche said it was already in the process of putting together a new bid. We are continuing to negotiate with the KfW over the improvement in our loan application, a spokesman said.

The request for aid from Germany's government is one of the ways Porsche is hoping to solve its debt headache.

The sports car maker racked up 9 billion euros ($12.7 billion) debt trying to swallow bigger rival Volkswagen before the financial crisis pushed it off course.

But it hopes to get the deal back on track. Sources told Reuters on Wednesday Porsche was prepared sell VW share options it holds to Gulf state Qatar, to ease its debt problems and clear the way for a merger with VW.

Porsche shares were up 7 percent at 46.1 euros at 8 a.m. EDT.

(Reporting by Gernot Heller and Christian Hetzner; writing by Marc Jones and Paul Carrel; Editing by Jon Loades-Carter)

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