By Andreas Rinke and Jörn Poltz

MUNICH, Germany (Reuters) - The leader of Germany's Christian Social Union (CSU) acknowledged on Friday he was wrong to openly criticize conservative ally Chancellor Angela Merkel for her refusal to adopt limits on refugees.

But Horst Seehofer, Bavarian state premier, told a party congress he still wanted annual numbers capped at 200,000, warning the CSU and Merkel's Christian Democrats (CDU) might fail to bridge their differences on the issue before September's federal elections.

The protracted dispute between the leaders of the sister parties has hurt both in opinion polls and contributed to a series of state election defeats.


Merkel, expected to seek a fourth term next year, insists there should be no cap. Yet she needs the support of the CSU, which operates only in Bavaria and delivers about a sixth of the combined CDU/CSU vote.

"It was a crass political mistake," Seehofer said of the public row with Merkel, who skipped this year's CSU congress in Munich after he publicly humiliated her with a lengthy lecture at last year's gathering. "I've learned my lesson."

Because of the unresolved dispute, Seehofer will also not attend the CDU's party congress next month in Essen - an unprecedented mutual snub for the leaders of the parties whose alliance has governed Germany for 47 of the last 66 years.

"I won't sell the CSU's soul on this issue," Seehofer told the party delegates, to applause. He said many Germans sense there has been a "loss of control" because more than a million refugees had arrived since September 2015.

"I won't accept a lousy compromise," he added. "For me what is essential is that you can't take in more refugees than you're able to integrate effectively. No country in the world is able to handle the number of refugees we took in last year. A limit of about 200,000 ... is needed."

He said it was possible he and Merkel would not be able to find common ground by September. "I can't guarantee that we'll be able to settle this," Seehofer said. "The talks are continuing in reasonable way."

(Writing by Erik Kirschbaum; editing by John Stonestreet)

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