Private equity firm Cerberus is demanding more than $7 billion from Daimler AG over losses that followed its 2007 acquisition of Chrysler LLC in a bitter dispute that could overshadow a plea for U.S. government aid for Chrysler.

The extraordinary claim, dismissed as baseless by the German automaker, amounts to a demand for more than a full rebate for the amount Cerberus Capital Management paid in its troubled deal for Chrysler just over a year ago.

Cerberus claims that Chrysler's former owner Daimler breached the terms of a $7.2 billion deal to sell 80.1 percent of the struggling U.S. automaker in August 2007.

Daimler, which went public with the dispute on Wednesday, said that the demands by Cerberus had complicated talks over the sale of its remaining 19.9 percent of Chrysler.

'From our point of view, Cerberus has taken a position that is very difficult to comprehend,' Daimler Chief Executive Dieter Zetsche told reporters in Munich, calling the allegations 'unfounded.'

Cerberus had been looking to acquire the remainder of Chrysler from Daimler in order to simplify a potential sale of Chrysler, people familiar with the talks have said.

Merger talks between Chrysler and General Motors Corp were dropped earlier this month when GM said its near-term focus was on shoring up its own cash position.

Cerberus is now seeking $7 billion in emergency federal aid for Chrysler and has been given until early next week to submit plans to the U.S. Congress on how the automaker can be restructured as a 'viable' business.

That request is part of a plea for $25 billion for the U.S. auto industry also being pushed by GM and Ford Motor Co and scheduled to be taken up by U.S. lawmakers next week.

Chrysler Chief Executive Bob Nardelli said on Wednesday in an email to employees that the automaker was ready to meet the 'viability' test set by Congress and share 'plans for returning Chrysler to profitability.

Chrysler burned through $3 billion in the third quarter, leaving it with just $6.1 billion in cash as sales worsened.

Until now, Cerberus executives had said that the Chrysler investment performed according to their plans until the most recent industry-wide downturn in U.S. auto sales.

It was not clear to what extent Cerberus' accusation that Chrysler was a damaged asset when it acquired the automaker would affect the U.S. government's attitude toward a possible bailout now.

VEHICLE FINANCING PART OF DISPUTE

In a statement, Cerberus said Daimler had made 'extraordinary changes' to its underwriting standards for vehicle leases and financing between February 2007 and when the deal to sell Chrysler closed in August.