UPDATE 1-Chile's SQM to decide on future of lithium holdings in Maricunga by year's end - mining minister

(Adds additional context on Maricunga lithium deposit, potential projects)

SALAR DE AGUILAR, Chile, Nov 28 (Reuters) - Chile has asked top lithium miner SQM to decide by year’s end what it will do with its holdings in the Maricunga salt flat, the country’s second richest in lithium, Chile’s mining minister told Reuters.

Though Maricunga’s 90 square miles (145 sq. km) make it less than 5 percent the size of the lithium-rich Salar de Atacama in northern Chile, high-grade deposits of the ultralight battery metal nonetheless make it attractive to several prospective miners.

But fractured ownership has slowed development.

“We have asked SQM, which has holdings on the flat, to participate in a work group to determine what it will do with them,” Mining Minister Baldo Prokurica told Reuters on a trip to the Salar de Aguilar salt flat in the arid north of Chile.

Prokurica said he had asked SQM to respond by “year’s end.”

SQM did not respond to a request for comment.

A decision by SQM on how to move forward with its holdings at the still-undeveloped lithium deposit could potentially bolster prospects for a joint project with Chile state-run copper miner Codelco.

SQM’s 2018 contract with Chile development agency Corfo, which authorizes it to mine the flat, includes an option to work with Codelco, which also has holdings at Maricunga, to develop a project there. SQM and Codelco have not yet announced a deal.

Codelco has for years talked of getting into the lithium business, but has repeatedly delayed plans to develop its reserves to concentrate on copper, its primary business.

Codelco is also in talks over a potential joint project at Maricunga with foreign-backed miner Salar Blanco, which also has holdings on the flat and is pushing forward with final environmental approvals.

Salar Blanco is 50% owned by Australia’s Lithium Power International, with smaller stakes held by Canada’s Bearing Lithium and local capital.

Chile possesses the world’s largest reserves of lithium, a key ingredient in batteries for electric vehicles. But the nation’s output has barely budged in recent years, as bureaucractic and environmental hurtles have stymied development. (Reporting by Fabian Cambero, writing by Dave Sherwood Editing by Alistair Bell)