FRANKFURT/BERLIN (Reuters) - General Motors' decision to keep its European arm Opel after months of negotiations to sell it triggered anger and dismay in Germany, which had led the talks and was putting up much of the cash.

Opel labour leader Klaus Franz rescinded the millions of euros in cost concessions workers agreed to on the expectation that Opel would be bought by Magna <MGa.TO>, the Canadian autoparts firm leading the bid that the German government had thrown its weight behind.

German Economy Minister Rainer Bruederle called GM's behaviour "totally unacceptable", while Christine Lieberknecht, the premier of Thuringia state, which hosts an Opel plant, called the decision a "low blow".

German officials who asked not to be named said the decision came as a total surprise to Chancellor Angela Merkel and her advisers during a visit to Washington, where Merkel addressed a joint session of Congress.

One Opel worker showing up for an early-morning shift at the plant in Bochum, a factory seen at particular risk as GM swings the cost-cut axe, was in a bleak mood.

"I don't know what is going to happen here in Bochum if Magna does not take it over," said the man who did not give his name.

GM Chief Executive Fritz Henderson told a German delegation the news during Merkel's meeting in Washington with the heads of the World Bank and IMF, shortly before her return to Berlin.

Senior German officials said the Opel issue did not come up when Merkel, who had lobbied hard for Magna and its Russian partner Sberbank to buy Opel as the best way to preserve German jobs, met U.S. President Barack Obama on Tuesday.

Juergen Reinholz, economy minister of Thuringia, said GM had signalled it would pay back a 1.5 billion euro German bridging loan for Opel by the end of November.

Opel put the best face on its parent's change of heart.

"The GM board of directors' decision brings clarity for Opel/Vauxhall," it said in a brief statement on Wednesday.

"We will actively support all parties to implement this board decision as quickly as possible in order to safeguard a successful future for Opel."

General Motors abandoned a long-expected sale of Opel, saying improving business conditions and the strategic importance of Opel had prompted the move by its 13-member board of directors.

The decision left open the question of how GM will finance its plan to keep and restructure Opel.

A GM Europe spokeswoman said late on Tuesday that the company was counting on European loan guarantees to provide the bulk of the financing it needs to overhaul Opel.

Countries with Opel plants including Germany, Britain, Spain and Belgium were originally supposed to provide 4.5 billion euros in state aid for the rescue of loss-making Opel.

GM said it expected that restructuring Opel on its own would cost about 3 billion euros, costs expected to cover job cuts and plant closures.

Labour leader Franz said workers would not go along with GM's "blackmail" of European governments and staff.

The GM board decision to keep Opel came after European Union officials challenged the terms of the funding Germany had pledged to support the sale of Opel to Magna.

Germany had promised 4.5 billion euros in aid to help close the Magna deal, which was widely seen as the option most likely to preserve Opel jobs.

But EU officials said GM needed to confirm that it would have agreed to sell Opel if Germany had made clear that the same funding would have been available to any buyer.

GM's board had opted to sell a 55 percent stake in the loss-making Opel unit to Canadian group Magna and its partner Sberbank after the seven months of talks, which had included a competing bid from Brussels-listed RHJ International.

(Reporting by Noah Barkin, Maria Sheahan, Kevin Krolicki, Philipp Halstrick, Gernot Heller, Christiaan Hetzner, John Crawley, Jui Chakravorty, Soyoung Kim, John McCrank, David Bailey, Ben Klayman)

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