India-focused Vedanta Resources will buy a 51 percent controlling stake in Cairn India for $8 billion to $8.5 billion, a source familiar with the matter told Reuters on Friday.

Vedanta Resources is in talks with Cairn Energy, which has a 62.4 percent stake in Cairn India, to buy a stake in the unit, both companies confirmed on Thursday without giving details.

The source said the deal is expected to be announced on Monday. Cairn Energy and Vedanta declined comment.

Such a deal by Vedanta, controlled by chairman Anil Agarwal, would be the diversified miner's first move into oil and gas. Analysts had said funding for the deal was likely to be a key issue. Vedanta's confirmation of talks could incite interest from other bidders, analysts said.

A huge oil find in Rajasthan helped propel Cairn Energy from a small company to a major oil producer and led it to spin off the Indian operations in January 2007.

Shares in Cairn India, the country's fourth-largest oil and gas company, rose 4.8 percent. Vedanta shares fell 6.8 percent on the London Stock Exchange.

Cairn India was valued at $13.6 billion by close of trade on Wednesday, valuing Cairn Energy's 62.4-percent stake at $8.5 billion, the same amount they are paying for a 51-percent stake.

Cairn Energy may sell a stake in Cairn India, but will not exit the business, the head of the the company's local unit said.

"I don't think they are exiting the business. They are just selling stake," Rahul Dhir, chief executive of Cairn India told reporters on Friday after meeting Indian Petroleum Secretary S. Sundareshan.

Sundareshan said that a company that has signed a production sharing contract (PSC) with the government of India for an oil exploration block would need the government's approval if some stake in the field or the company were sold.

"All PSCs have provisions for appropriate government approvals before such changes in the ownership are made," said Sundareshan, the top official in the oil ministry. Dhir did not provide further details.

"What I do know is that they (Cairn Energy) remain a very strong supporter of our business. If a new strategic shareholder is coming, it only underscores the belief that they have in our business," Dhir said.

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