Indiana pension funds asked the US Supreme Court on Sunday to immediately delay the sale of bankrupt automaker Chrysler to a group led by Italian carmaker Fiat SpA while they challenge the deal.

The request, which moves the legal battle to the highest court in the United States, was filed after a US appeals court in New York approved Chrysler's sale to a group led by Fiat, a union-aligned trust and the US and Canadian governments.

The Chrysler ruling could set a precedent for the case of General Motors Corp, which is using a similar quick sale strategy in its bankruptcy in New York.

The appeals court late on Friday stayed the closing of the sale until Monday afternoon, giving the pension funds time over the weekend to ask the Supreme Court to block the sale while they appeal.

The pension funds, which hold about $42 million of Chrysler's $6.9 billion in secured loans, have argued the sale unlawfully rewarded unsecured creditors such as the union ahead of secured lenders and that Chrysler was pursuing an illegal reorganization plan through a sham sale.

"The need for the court to review the profound issues presented by Chrysler's novel bankruptcy sale far outweighs the cost of delaying" a sale, lawyers for the pension funds and the Indiana attorney general said in seeking an immediate stay.

The three state pension and construction funds also argued the US government, which kept Chrysler afloat with emergency loans before the automaker's bankruptcy and financed its Chapter 11 filing, overstepped its authority by using bailout funds Congress intended for banks.

"The public is watching and needs to see that, particularly, when the system is under stress, the rule of law will be honored and an independent judiciary will properly scrutinize the actions of the massively powerful executive branch," the lawyers said.

"The issues presented by this case are of immediate and enduring national significance," they said.

Without a stay from the Supreme Court, the sale will close on Monday, the lawyers said.

A federal bankruptcy judge in New York and the three-judge panel of the appeals court rejected the funds' arguments in approving the sale.

Attorneys for Chrysler, the US government and Fiat all have argued the sale should be allowed to go forward. Fiat can walk away from the deal if it does not close by June 15.

The request to stay the deal was filed with Supreme Court Justice Ruth Bader Ginsburg, who has responsibility for such emergency matters from the New York-based appeals court.

Ginsburg could act on her own or could refer the matter to the full court. A stay from the full court would require the votes of five of the nine Supreme Court members. - Reuters