BEIJING (Reuters) - China will send inspection teams to investigate and severely punish illegal expansion by coal and steel firms as part of its efforts to slim down the two industries, the country's cabinet said on Thursday.

With most of the country's steel and coal enterprises making losses in 2015, China promised in February to slash 500 million tonnes of coal production capacity and 100 million to 150 million tonnes of crude steel capacity over the next three to five years in a bid to reduce price-sapping supply gluts.

The State Council said in a notice posted on China's official government website (http://www.gov.cn) that this year's targeted closures had already been "basically completed", but some firms were still illegally expanding capacity.

The cabinet named as culprits the Hebei Anfeng Steel Corp, based in the northern port city of Qinhuangdao, as well as a small steel plant in eastern China's Jiangsu province.

China has traditionally struggled to rein in its massive steel and coal sectors, with local governments often turning a blind eye to expansion projects that provide additional local employment and economic growth.

But this year Beijing been trying to keep its regions on a tighter leash, and inspection teams from the Ministry of Environmental Protection have criticized several provincial authorities for failing to restrict capacity growth in the two sectors.

The State Council statement said it will also encourage "high-quality firms" in the two sectors to step up restructuring efforts along the lines of the merger between the state-owned Baoshan Iron and Steel and Wuhan Iron and Steel groups.

It added that China would unveil financial incentives for regions currently trying to deal with overcapacity, and would provide more support when it comes to re-employing laid-off workers.

The notice summarized the proceedings of a regular Wednesday meeting held by Premier Li Keqiang, which also passed a draft law on reining in unfair competition.

(Reporting by Beijing Monitoring Desk and David Stanway in SHANGHAI; Editing by Clarence Fernandez)