PANAMA CITY (AFP) - A Spanish cabinet minister is to meet Panama's president on Monday to help break a US$1.6 billion (S$2 billion) impasse that threatens to halt work on a major expansion of the Panama Canal.

Spanish Public Works Minister Ana Pastor arrived in the Central American country late Sunday and is to meet President Ricardo Martinelli and Panama Canal Authority Administrator Jorge Quijano.

Pastor's goal is to mediate in a conflict between Panama and the construction group working on the canal expansion led by Spanish builder Sacyr.

The Grupo Unidos por el Canal consortium, which also includes Italian, Belgian and Panamanian companies, has threatened to halt the project in three weeks if canal authorities fail to pay a massive extra US$1.6 billion charge.

Ahead of the Martinelli meeting, Pastor will hold a closed-door meeting with top consortium officials, including Sacyr CEO Manuel Manriquez.

The Panama Canal expansion project aims to make the 80km waterway, which handles five per cent of global maritime trade, big enough to handle new, so-called mega cargo ships that can carry 12,000 containers.

Currently the canal can handle only ships large enough to carry 5,000 containers.

The United States built the canal between 1904 and 1914 and had full control of the waterway until handing it over to Panama in late 1999.

The consortium began work on a third set of larger canal locks in 2009 and expects to complete construction in June 2015, already nine months over the contractual date. Work is about 70 per cent complete.

The overall cost of the project has been estimated at US$5.2 billion.