* Insider Marco Patuano becomes chief executive
* Franco Bernabe quits as chairman after clash with shareholders
* New management could sell Brazilian unit
* Shares rise 1.7 percent
By Danilo Masoni and Stefano Rebaudo
MILAN, Oct 3 (Reuters) - Telecom Italia said on Thursday it had picked insider Marco Patuano as chief executive after long-standing executive chairman Franco Bernabe resigned in a strategy clash with core shareholders, paving the way for possible asset sales.
Patuano, who started his career in Telecom Italia after graduating at Milan's elite Bocconi university in 1990, is expected to draw up a new business plan that could include divestments at the debt-laden former monopoly phone company.
Telecom Italia thanked Bernabe for his contribution and agreed an exit package of 6.6 million euros ($9 million). It gave no reasons for his departure after six years at the helm.
The resignation of the urbane 65-year-old businessman follows what industry and market sources have said was a clash over strategy with the core shareholders Telefonica, Intesa, Generali and Mediobanca.
These shareholders agreed two weeks ago to gradually give Spain's Telefonica full ownership of Telco, their investment vehicle which controls Telecom Italia via a 22.4 percent stake. Bernabe had opposed the deal, a number of the sources have said.
Telecom Italia also said on Thursday it had started to look for a permanent chairman.
Patuano will face the task of cutting nearly 29 billion euros of debt at Telecom Italia, one of Italy's largest private-sector employers, as well as reversing years of sluggish growth and boosting its share price.
"The group has strong potential. I believe its current management is able to develop it," said board member Gaetano Micciche as he left the board meeting.
Analysts say a new leader increases the likelihood that Telecom Italia will put its Brazilian unit TIM Participacoes up for sale to help cut debt and fund badly-needed domestic investments.
Bernabe had opposed asset sales and had been seeking support for a share issue to raise as much as 5 billion euros to avoid a credit rating downgrade to "junk" status.
During his tenure Telecom Italia's debt was cut by 8 billion euros but almost 30 billion euros was wiped off its share market value, a 75 percent drop in the price.
Telecom Italia shares ended up 1.7 percent at 0.64 euros by the market close on Thursday, down by 7 percent so far this year and over 17 percent on a year ago.
"We are optimistic that Telecom Italia can be worth significantly more and be a better part of the Italian economy in its next phase of life," Bernstein analyst Robin Bienenstock, who rates the stock "Outperform" and has a 1 euro price target, said in a note.
The company in August warned its profit would fall faster this year than it had previously thought, as a price war for mobile phone services and the deep economic recession in Italy bite.