* Steel seized as part of pollution probe at ILVA plant
* ILVA wants to sell steel to fund clean-up
* ILVA a major employer in hard-pressed southern region (Adds statement from Riva)
By Massimiliano Di Giorgio
ROME, Jan 22 (Reuters) - Judges rejected a bid by steelmaker ILVA to reclaim 1 billion euros ($1.3 billion) worth of products seized as part of an environmental damage investigation at its sprawling plant in southern Italy, sources said on Tuesday.
The products were confiscated last year in a move which ILVA said threatened the future of Italy's biggest steel plant as well as a chain of others.
ILVA has embarked on a two-year clean-up operation at the site in Taranto after prosecutors charged that toxic emissions had caused abnormally high levels of cancer and respiratory illness in the region.
ILVA, owned by the private Riva Group, wanted to use money from the sale of confiscated steel to help fund the clean-up.
Europe's biggest steel plant, which has been under special administration since last July, has a workforce of around 20,000 and is one of the biggest employers in a region with high joblessness and little industry.
Separately, Fabio Riva, vice chairman of Riva Group, who has had a European arrest warrant placed against him, presented himself to authorities in London and was placed on bail.
An emailed statement from a spokesman said that he had asked to be allowed to remain in London and had asked that an extradition request from Italian authorities not be granted. A decision is expected in the next few weeks.
The Taranto court last year ordered Riva, son of group chairman Enrico Riva, to be put under house arrest on criminal conspiracy charges related to the case. Riva disappeared in November.
The judges in Taranto also referred to the Constitutional Court a law which would allow the seized materials to be returned to the company even if judges rule against it.
The so-called "Save ILVA law", aimed at allowing the plant to keep operating during the clean-up, was passed last year but has been challenged as potentially unconstitutional by prosecutors.
The Constitutional Court is due to hear the case on Feb. 13.
The Italian cabinet will meet on Tuesday afternoon to discuss a possible new decree to allow the confiscated steel to be freed up and sold. ($1=0.7510 euros) (Additional reporting By Vincenzo Damiani; Editing by Stephen Jewkes and David Cowell)