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Norway's Liberals to join Conservative-led government

By Joachim Dagenborg

MOSS, Norway (Reuters) - Norway's Conservative-led government has agreed to include the small centrist Liberal Party in the cabinet, expanding it to three parties from two and promising further tax cuts, Prime Minister Erna Solberg said on Sunday.

In a joint statement, Solberg's Conservative Party, the smaller right-wing Progress Party and the Liberals also said they will continue to reform Norway's $1 trillion sovereign wealth fund, but stopped short of promising specific change.

Among the proposals considered for the fund, the largest of its kind, is a suggestion to allow it to invest in unlisted firms and infrastructure projects, as well as a potential split from its current manager, the central bank.

Adding the Liberals eight seats makes day-to-day governing easier for Solberg, but the three parties together still hold only 80 seats in Norway's 169-seat assembly and need support from the Christian Democrats to pass legislation.

While the Christian Democrats, who also hold eight seats, back the prime minister on fiscal matters, they have rejected calls to enter government.

As part of the deal to expand the cabinet, Norway's Arctic region of Lofoten, Vesteraalen and Senja will remain off-limits to oil exploration at least until 2021, a key Liberal demand to protect the fisheries-rich environment.

The decision, although expected, disappointed energy firms hoping to raise output from western Europe's largest producer of oil and gas.

"The potential for future value creation and jobs in these regions is large," lobby group Norwegian Oil and Gas said in a statement.

Negotiations with the Liberals have taken place since Jan. 2, following the government's re-election last September, in which Solberg campaigned on a promise to continue to cut taxes for companies and individuals.

"Parts of the oil policy, immigration and taxation were all difficult to agree," the prime minister told a news conference on Sunday.

Norway's opposition Labour Party meanwhile criticized the government for not making firmer promises to raise military spending.

"The government shows no ambition to meet NATO's target of spending 2 percent (of GDP) by 2024," Labour MP Anniken Huitfeldt tweeted.

(Writing by Terje Solsvik, editing by David Evans)