UPDATE 1-Italian cabinet approves "mother of all reforms" to slash red tape

* World Bank ranks Italian red tape among worst in Europe

* Decree will be basis of Italy's Recovery Plan to seek EU funds

* Streamlines tender process for public works

* Makes capital increases easier until end-year (Adds Conte quotes, background)

By Gavin Jones and Giuseppe Fonte

ROME, July 7 (Reuters) - The Italian government approved a package of measures on Tuesday aimed at cutting the complicated red tape that has long been blamed for crimping growth in the euro zone's third-largest economy.

The "simplification decree", approved after weeks of fraught political negotiation, has been touted by Prime Minister Giuseppe Conte as "the mother of all reforms" to help relaunch an economy brought to its knees by the coronavirus.

It was approved in a provisional version at an overnight cabinet meeting, leaving final details still to be hammered out. It must then get a green light from parliament within 60 days.

The legislation, which runs to 174 pages in a draft seen by Reuters, covers a raft of sectors such as public tenders, digitalisation, rules for corporate capital increases and the criminal responsibility of public officials.

Conte told reporters the decree would form the basis for Italy's Recovery Plan, a reform project it must present to the European Commission in September to obtain EU financing for its economic recovery effort.

"I will boast about this decree, all of Italy must boast about this decree and about the results it will bring," Conte said at a news conference.

There have been many attempts by previous Italian governments to reduce red tape. In 2010, former Minister for Simplification Roberto Calderoli famously made a bonfire of 375,000 regulations he claimed to have abolished from the statute books.

Yet, ordinary Italians and companies see little progress.

The World Bank's 2020 Ease of Doing Business survey, which considers bureaucratic obstacles to things like starting a business, paying taxes and enforcing contracts, ranked Italy 58th, well behind most European countries and losing ground for the second year in a row.

"REVOLUTION"

Conte's decree allows public bodies to assign small-scale work projects without using the tortuous public tender process, and it drastically simplifies procedures required even for larger projects worth up to 5.2 million euros ($5.88 million). The changes are initially valid only for the next 12 months.

It also tightens the definition of abuse of office, making it harder for public officials to be investigated for one of Italy's most commonly prosecuted white-collar crimes.

Officials sometimes block projects rather than risk investigation by signing off on something that may later fall foul of the law.

Under the new rules, there will be "more (legal) risks for administrators who hold up projects that for those who approve them", Conte said.

He called the decree a "revolution" and said it would help Italy increase public investment to 3% of national output over the next four years from 2.3% last year.

Conte presented a list of 130 infrastructure projects which he said could be kick-started by the new norms, including new high-speed rail links all over Italy.

The reforms have sparked friction in the ruling coalition, with the anti-establishment 5-Star Movement concerned that easing controls on public tenders may favour corruption, another of the country's long-standing problems.

Keen to improve Italy's digitalisation, the decree streamlines procedures for the roll-out of new fast broadband networks, and limits the current powers of mayors to oppose the installation of 5G mobile infrastructure, the draft said.

On corporate governance, it abolishes until the end of this year the requirement that the votes of two-thirds of shareholders be needed to approve capital increases.

($1 = 0.8847 euros) (Reporting By Gavin Jones and Giuseppe Fonte; Editing by Kim Coghill and Nick Macfie)