SARAJEVO - Bosnia's autonomous Serb Republic on Wednesday sealed a 650 million Bosnian marka ($330 million) deal with China State Construction Engineering Corp. Ltd. to build a section of a highway connecting the region with Serbia.

Preparatory work on the 33-kilometre-long Vukosavlje-Brcko section in northern Bosnia should begin at the end of August, Serb Republic Prime Minister Radovan Viskovic said.

The funding estimate for the section of highway to connect Prijedor in the west of Bosnia with the Serbian capital Belgrade did not include VAT, he added.

The Serb Republic wants to build a modern highway connecting most of its territory with Serbia, its political ally and largest trade partner.

Viskovic said the Chinese company was chosen as the most favourable bidder after the European Bank for Reconstruction and Development declined to support the project as non-vital.

He said the Serb Republic would continue talks with Chinese companies if the EBRD decides not to support other transportation projects planned in the region.

"This shows that Republika Srpska has an alternative and cannot be blackmailed by some from the West who try to influence political attitudes and political solutions by banning banks from investing money," said Bosnian Serb leader Milorad Dodik, a Serb member of Bosnia's three-man inter-ethnic presidency.

Pro-Russian nationalist Dodik advocates the secession of the Serb Republic from Bosnia and its eventual union with Serbia.

Many Chinese companies are involved in the construction of roads and energy projects in Bosnia.

($1=1.970 Bosnian marka)

(Reporting by Daria Sito-Sucic; editing by Jason Neely)