A review of the proposed investment by Chinese state-owned aluminium firm Chicalco, which would mark China's largest-ever foreign investment, was extended by 90 days to allow further scrutiny of the deal, the Treasury said.

The delay, which came as the initial 30-day review period closed, would "enable due consideration" of the deal, Patrick Colmer, general manager of the Treasury's foreign investment and trade policy division, said in a statement.

Chinalco wants an 18 percent stake in the Anglo-Australian mining giant Rio Tinto but needs the approval of the Treasury, which is being advised by Australia's Foreign Investment Review Board, for the deal to go ahead.

The delay in making the decision had been widely anticipated as Canberra struggles over whether to approve or reject the deal.

The transaction would give debt-laden Rio Tinto a much-needed cash injection but it would see a state-backed entity from a key minerals customer, China, boost its stake in the critical sector.

Mining analyst Stephen Bartrop said the decision would be a difficult and sensitive one for the investment review board.

"The government wants to appease the Chinese but at the same time it doesn't want to give away undue influence over Australian assets," he told the Australian Broadcasting Corporation (ABC).

Chinalco announced the proposed investment in February but the effects of the deepening economic crisis and falling resources prices have focused closer attention on foreign, notably Chinese, investments in the sector.

The investment review board is considering several proposed Chinese investments in Australian resource groups, including Minmetals Non-ferrous Metals Company's (Minmetals) 2.6-billion-dollar (1.69-billion US) planned takeover of OZ Minerals Ltd.

Politicians have expressed disquiet about the Rio Tinto deal and some institutional shareholders are angry that their holdings would be diluted by the issue of stock to the Chinese group.

A major Rio Tinto shareholder, Australian Foundation Investment Company Ltd. (AFIC), on Monday expressed deep concern over Chinalco's planned investment.

It said the deal could raise potential conflicts of interest over investment decisions as Chinalco is backed by a government that is both a customer and competitor of Rio Tinto.

"We are deeply concerned about Chinalco becoming involved with the running of the business," the investment group said in a presentation to shareholders.

The deal, which has won the support of the Rio Tinto board, would allow Chinalco to appoint two new non-executive board members to the board.

Rio would use the cash injection to help lower the massive 38 billion US dollar debt it ran up by buying Canadian aluminium producer Alcan Inc. in 2007 as the global economy and demand for minerals slows.

Neither Rio Tinto nor a spokesman for Australian Treasurer Wayne Swan were available for comment on the delay.

But Constellation Capital Manager find manager Peter Chilton said the extension of the review was not unusual and that the Chinalco offer was the best available in a time of crisis and very tight credit.

"The Australian government would clearly recognise this is an important deal and has to be considered very fully," he told the ABC.

"But the extension by 90 days is just normal course of business. I don't think it necessarily means the government thinks this is more serious than any other particular deal that might be contemplated."

-- Dow Jones Newswires contributed to this report --

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