The US Supreme Court has granted a request to delay the sale of carmaker Chrysler to a group led by Italian carmaker Fiat.

Three Indiana state pension and construction funds filed papers at the court on Sunday calling for the sale to be halted so they can pursue an appeal.

The Obama administration, which strongly backed the sale, had called on the court to reject the request.

The court said Chrysler's sale was "stayed pending further order".

Chrysler entered bankruptcy protection in April following a massive slump in sales brought on by the financial crisis.

'Grave consequences'

The US government had strongly supported its sale to the Fiat-led consortium, which would allow it to emerge from bankruptcy.

Fiat would control 20% of Chrysler, while 68% would be owned by a union trust, and the two governments would share 12%.

However, the pension funds, which hold about $42m (£26.3m) of Chrysler's $6.9bn in secured loans, are opposed to the sale.

They say it inverts usual bankruptcy practice and unlawfully rewards unsecured creditors, such as the union, ahead of secured lenders.

Earlier, the Obama administration said that blocking the deal would have "grave consequences".

Solicitor General Elena Kagan said that blocking the sale could force Chrysler into liquidation.

Chrysler had filed for bankruptcy protection on April 30 and had aimed to complete the sale and alliance with Fiat within 60 days.

The Chrysler case could also set a precedent for General Motors, which entered bankruptcy protection on 1 June.

Source: BBC