The Treasury has raised its offer to Chrysler lenders with just over a week remaining for the embattled automaker to reach deals to cut its debt, labor costs and reach an alliance with Italy's Fiat SpA, sources said on Wednesday.

Treasury has offered the lenders $1.5 billion of first-lien debt and a 5 percent equity stake in a restructured Chrysler in exchange for about $7 billion of debt they now hold, the sources said on condition of anonymity because of the confidential nature of the ongoing negotiations.

The Chrysler lending group on Monday had sought $4.5 billion of first-lien debt and a 40 percent stake in the restructured automaker, sources have said.

That proposal was far above an initial offer from Treasury and quickly rejected by the Obama administration, which had proposed in early April that lenders write off all but $1 billion of the debt.

The committee representing Chrysler lenders includes larger institutions JPMorgan Chase & Co, Goldman Sachs Group, Morgan Stanley and Citigroup as well as Oppenheimer Funds, Stairway Capital Management, Elliott Management and Perella Weinberg Partners.

(Reporting by Jui Chakravorty; Editing by Lincoln Feast)

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