By Ahmed Rasheed

BAGHDAD, Oct. 6 (Reuters) - Iraq has awarded a $1 billion contract to a unit of French firm Suez Environnement to provide water for eastern Baghdad, the Iraqi capital's municipal government said on Monday.

The contract is to build a giant plant to provide water for the eastern Baghdad district of Rusafa, which includes rapidly growing Shi'ite suburbs that have had poor water supplies as a result of decades of economic sanctions and war.

"The cabinet has agreed to award the tender of the Rusafa water project ... to France's Degremont," Baghdad's Mayor Sabir Al-Esawi said in a statement.

"The contract's value is about $1 billion," Esawi added. A spokesman who read out the statement said the deal had not yet been formally signed.

Degremont is the water-treatment plant unit of Suez Environnement. A spokeswoman for Suez Environnement told Reuters in Paris they had made a joint bid for the tender with an Iraqi company, but had not been notified of winning the contract.

Last month, Iraq said it had signed a deal with an unidentified French-Iraqi group to repair eastern Baghdad's water supply system, but did not identify the companies.

Monday's statement did not mention any Iraqi partner, but Baghdad has said foreign firms working in Iraq must work with Iraqi partners and employ as many Iraqi staff as possible.

The planned capacity of the plant is 2.75 million cubic metres of water per day, the mayor said.

Baghdad's dilapidated water infrastructure desperately needs modernising after decades of war and U.N.-imposed sanctions against ousted dictator Saddam Hussein.

Many Iraqis have been frustrated by the slow pace of reconstruction efforts since U.S. troops toppled Saddam in 2003.