UPDATE 2-U.S. government backs smaller version of Conoco Alaska drilling project

(Adds reaction from ConocoPhillips, environmental group, details from environmental document)

By Nichola Groom

Feb 1 (Reuters) - President Joe Biden's administration said on Wednesday it would support a scaled-back version of ConocoPhillips' planned $6 billion Willow oil and gas drilling project in Alaska but has not yet made a final decision on the contentious proposal.

The Willow project's fate is being closely watched by both the oil and gas industry and environmental groups as Biden seeks to balance his goals of fighting climate change with calls to increase domestic fuel supplies to keep prices down.

The U.S. Bureau of Land Management (BLM) published the project's final environmental review, selecting a "preferred alternative" that would include three drill sites and less surface infrastructure than originally proposed. ConocoPhillips had initially wanted to build up to five drill sites, dozens of miles (km) of roads, seven bridges and pipelines.

According to BLM's analysis, the design it endorsed would reduce the project's impact on habitats for species like polar bear and yellow-billed loons. Alaska officials and ConocoPhillips backed that option in letters submitted to the agency in recent months.

In a statement, ConocoPhillips said the design represented "a viable path forward" for Willow and said it was ready to begin construction "immediately" upon approval. The company said the project would deliver up to $17 billion in revenue for federal and state governments and local Alaska communities.

Environmental groups criticized the analysis and called on Biden to reject the project.

"Our window to act is rapidly closing to avert catastrophic climate change, and this plan only takes us one giant step closer to the edge," Kristen Miller, executive director of Alaska Wilderness League, said in a statement.

BLM's parent agency, the Interior Department, said in a statement that the selection of the preferred alternative was not a final decision on approval of the project, adding that it had "substantial concerns" about Willow's impact on greenhouse gas emissions and wildlife.

A final decision will be made no sooner than 30 days after the review's publication, the department said.

(Reporting by Nichola Groom; editing by Jonathan Oatis and Will Dunham)