UPDATE 1-Berlin to scrap gas levy as it looks for funding sources - report

(Adds details, background, comment from economy ministry)

BERLIN, Sept 27 (Reuters) - Germany's coalition government plans to scrap a levy on consumers' gas bills by Wednesday, the Frankfurter Allgemeine Zeitung reported on Tuesday, citing sources.

It is possible that a decision on the levy will be made on Tuesday evening, the newspaper added.

The economy ministry said talks regarding the levy were ongoing.

"A replacement of the levy makes sense if alternative financing ensures the stabilization of the gas markets," a spokesperson for the ministry said.

The need for the levy, which was planned to come into effect on Oct. 1 to help importers with the additional costs of replacing Russian gas, came into question after the government's decision to nationalise Uniper, Germany's biggest Russian gas importer.

But the government is still discussing how to fund further relief for companies and citizens and a possible gas price brake that could cost a double-digit billion euros amount, two finance ministry sources told Reuters.

Berlin, which has suspended its deficit limit of 0.35% of gross domestic product this year, could still have leeway for more debt this year, the sources added.

German Finance Minister Christian Lindner said he wanted to comply with the debt limit next year but said the government "will find the necessary funds", without giving further details.

Withdrawing money through creating a special fund is a preferred option for the Greens party which runs the economy ministry. But Lindner does not want such an option.

Germany's federal budget sees some 139 billion euros ($133.52 billion) of new debt in 2022, the second highest in the country's history, in addition to a 100 billion euro special fund for upgrading the military that Berlin announced after Russia's invasion of Ukraine. ($1 = 1.0410 euros) (Reporting by Christian Kraemer, Markus Wacket and Riham Alkousaa, editing by Rachel More and Ed Osmond)