General Motors Corp (GM.N) is in talks to buy back parts of bankrupt auto supplier Delphi Corp, a source with direct knowledge of the talks said on Monday.

The discussions are part of GM's sweeping restructuring plan aimed at lining up additional federal support as it faces a Feb.17 deadline to prove to the U.S. government it can be made viable, the source told Reuters.

GM, which was granted $13.4 billion of government loans inDecember, intends to submit the discussions with Delphi as part of its viability plan, said the source, who was not authorized to discuss the private talks.

GM started talking with Delphi last month about buying back parts of the supplier, including some plants, the source said.GM spun off Delphi a decade ago.

GM said it was working with Delphi and lenders as the auto supplier pursues an exit from bankruptcy. But GM said it had 'nothing new to announce' and would not comment directly on the report of talks with Delphi to take back assets.

'As GM has previously stated, any future actions or involvement by GM would have to be considered in the context of the viability plan it intends to submit to the United StatesTreasury later this month,' GM spokeswoman Renee Rashid-Meremsaid in a statement.

Delphi (DPHIQ.PK) spokesman Lindsey Williams said the company was in ongoing discussions with creditors and GM in an effort to emerge from Chapter 11 bankruptcy. He declined to comment on the specifics.

Delphi, which filed for bankruptcy in 2005, has been a major financial drag on GM at a time when the U.S. automaker is struggling to survive a deep downturn in global auto demand.

U.S. auto sales plunged 18 percent to 13.2 million vehicles in 2008, with the brunt of the declines felt in the last few months of the year with the nation mired in a recession.

GM has taken more than $11 billion in charges for Delphi's reorganization. GM agreed when it spun off Delphi in 1999 to assume pension and health-care obligations for thousands ofunion workers should the supplier be unable to do so.

Delphi has been trying to complete a revised reorganization plan since investors, led by Appaloosa Management, backed out ofa $2.55 billion equity plan to support its re-emergence last April.

The financial strains at parts suppliers have put a tighter squeeze on U.S. automakers, which themselves are struggling to restructure and cut costs.

The talks between GM and Delphi were first reported by The Wall Street Journal.

S&P equity analyst Efraim Levy said the discussions between GM and Delphi could clear the way for the automaker to apply for more federal assistance.

'While we don't know which plants might be transferred, or their profitability level, it may be advantageous to GM to apply for greater government funding since any cash drain from the assets could occur regardless of who has formal plant ownership,' Levy said.

But Levy said it was not certain that further aid would be approved for the struggling automaker and repeated his 'sell' rating on the stock.

Analysts estimate that up to 90 percent of U.S. auto suppliers serve multiple customers, meaning that a shutdown at one key supplier carriers a risk of wider production disruptions across the industry.

A trade group representing some 400 auto-parts suppliers is currently in discussions with the U.S. Treasury to secure emergency funding to avoid a wave of bankruptcies and a deeper crisis for cash-strapped automakers.