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UPDATE 2-Norway PM issues ultimatum to junior government partners

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OSLO, Aug 23 (Reuters) - Norway's Conservative Party Prime Minister Erna Solberg has set a Monday deadline for the three junior partners in her coalition to decide whether they should remain in her government.

The crisis was triggered by a long-simmering conflict between two of the four parties in Solberg's majority government, the right-wing Progress and the centrist Liberals, over how to pay for investments in roads and public transport.

If one of the parties leaves, Norway faces the prospect of a minority government, either with Solberg as prime minister or with opposition Labour Party leader Jonas Gahr Stoere taking the reins, depending on the support found in parliament.

Parties that want to stay in the cabinet must accept an ultimatum presented by Solberg if they want to remain.

"I've presented a final proposal," Solberg said late on Friday, while adding that the annual additional cost was estimated at around 2 billion Norwegian crowns ($223 million).

Faced with opinion polls showing declining support ahead of local elections on Sept. 9, the right-wing Progress Party has called for large cuts in road tolls - a proposal opposed by the environmentally minded Liberal Party.

While the new proposal will cut toll payments, it also adds fresh spending on public transport, a key Liberal priority.

Progress Party leader Siv Jensen later said she will recommend that her party should accept the deal, as did Christian Democratic Party leader Kjell Ingolf Ropstad.

But Liberal leader Trine Skei Grande, whose party had sought to retain the status quo, was not available for comment.

The Norwegian constitution does not allow snap elections and the next parliamentary election is still two years away. ($1 = 8.9674 Norwegian crowns) (Reporting by Terje Solsvik and Nerijus Adomaitis; Editing by Kirsten Donovan and Sandra Maler)