* EU's Ashton floats plan to break deadlock over Hezbollah
* Britain, others want to put the group on EU terror list
* Some EU states concerned over impact on Lebanon, Middle East
The European Union could blacklist Hezbollah's military wing while stressing it is open to talking to the militant Lebanese movement's political faction, under a proposal by the EU's foreign policy chief, EU diplomats said on Wednesday.
European governments have been deadlocked over the issue since May when Britain asked for the Shi'ite Muslim group's military wing to be put on the EU terror list, citing evidence it was behind a deadly bus bombing in Bulgaria last year.
Several EU capitals had objected, arguing such a move could destabilise Lebanon where Hezbollah is part of the government, and questioning whether there was sufficient evidence linking the group to the attack in the seaside resort of Burgas.
Before further talks on the issue in the coming days, the EU's Catherine Ashton suggested a compromise that could allay concerns that a blacklisting would complicate the EU's relations with Lebanon.
Two EU diplomats told Reuters the proposal suggests including a statement the EU "should continue dialogue with all political parties in Lebanon" and maintain funding to Beirut.
"The proposal on the table makes it clear the EU is serious about responding to terrorist attacks on its soil," a diplomat, from a country in favour of blacklisting Hezbollah, said.
The British proposal has gained urgency - and some support - in Europe in recent weeks because of Iranian-backed Hezbollah's deeper involvement in the Syrian civil war.
Diplomats say many of the 28 EU member states, including EU heavyweights France and Germany, back the British proposal. But unanimity is needed and Austria, the Czech Republic and Ireland have been among EU governments that have voiced reservations in the past.
Hezbollah denies any involvement in the Burgas attack last July that killed five Israelis and their driver.
Blacklisting the group would mark a major policy shift for the European Union, which has resisted pressure from Israel and Washington to do so for years.
In support of its bid, Britain has also cited a four-year jail sentence handed down by a Cypriot court in March to a Hezbollah member accused of plotting to attack Israeli interests on the island.
Ambassadors of EU states are due to discuss the issue on Thursday ahead of possible further talks during a meeting of EU foreign ministers in Brussels on Monday.
A spokeswoman for Ashton said no decisions had been taken.
"Discussions are ongoing and any decision would need unanimity," Maja Kocijancic said.