By Pedro Fonseca and Caio Saad

RIO DE JANEIRO (Reuters) - Australia's Olympic delegation presented Rio de Janeiro's mayor, Eduardo Paes, with a toy boxing kangaroo on Wednesday as they laid to rest a spat over conditions in the Olympic Village that has marred the buildup to next month's Games.

Paes angered many in Brazil and abroad when he appeared to downplay Australia's complaints over conditions in the Olympic Village on Sunday by saying he might install a kangaroo on the premises to make them feel more at home.

The gift of the small, stuffed toy by Australian delegation leader Kitty Chiller showed there were no hard feelings about what she dubbed "banter" with the outspoken mayor. Paes presented the Australian team with the key to the city of Rio.

Chiller's warning on Sunday that housing in the Olympic Village was "not safe or ready" due to leaky plumbing, blocked toilets and exposed wires ignited concern over Rio's readiness to host the first Olympics in South America.

She had moved the Australian team out of the Village until the problems were solved. Argentina also boycotted the site while Italy and New Zealand said they had been forced to call in workers to fix problems after organizers admitted the blocks had been handed over without proper testing of water and power systems.

At a ceremony in the Village on Wednesday, a smiling Paes apologized and thanked the Australian team for their understanding - and said they would be his second choice team for the Games, after Brazil.

"I think we've managed to continue laughing throughout ... to maintain our sense of humor," Chiller told a news conference after the ceremony, noting that some 50 Australian athletes had already moved back into the official accommodation.

"These Olympic games are a marathon not a sprint and I'm sure that there are going to be other hurdles and obstacles that crop up in other areas and it's just a matter of dealing with them as best as we can in good humor."

Paes has deployed more than 600 workmen to work around the clock on the Olympic Village and expects to have all 31 tower blocks ready for use by the end of the week. Labor inspectors warned on Wednesday they could fine organizers for not providing the workers with the proper legal contracts.

With nine days until the opening ceremony, only a fraction of the 18,000 team members expected for the Games have arrived, with the bulk of them due next week.

Thousands of soldiers and police are already patrolling the streets of the crime-ridden city, with a naval ship sitting off the sandy crescent of Copacabana Bay, where the beach volleyball competition will be held in a massive temporary arena.

The buildup to the Games was marked by concerns over a budget crisis in Rio de Janeiro, sparked by Brazil's worst recession since the 1930s, as well as an outbreak of the Zika virus, and a political crisis involving suspended President Dilma Rousseff who has been placed on trial in the Senate.

The head of the International Olympic Committee, Thomas Bach, who arrived in Rio on Wednesday, played down concerns over the city's readiness.

"The last couple of days before the Olympic Games there is always one issue or other to be solved. The Brazilians will solve it," Bach told reporters.

"You can already feel the Olympic energy here ... We always had confidence in Brazil, in the Brazilians, that it will be a fantastic Olympic Games."

Aside from fears over pollution in Guanabara Bay where sailing and long-distance swimming events will be held, some infrastructure for the Games is being completed at the last minute.

The metro line to carry visitors from the center of Rio to the distant western neighborhood of Barra da Tijuca where the Games will be held will only be inaugurated on Saturday by interim President Michel Temer.

Paes told a news conference the city would benefit from the legacy of the Games, which had allowed the completion of long-delayed projects. Visitors, he said, "will not find a perfect city but a much better one than we had in 2009."

A poll on Wednesday by polling group Ibope published in the Estado de S.Paulo newspaper showed 60 percent of Brazilians believe the Games, expected to cost around 40 billion reais (about $12 billion), will bring more harm than good to Brazil.

(Reporting by Pedro Fonseca; Writing by Daniel Flynn; Editing by James Dalgleish and Matthew Lewis)