BERLIN (Reuters) - Germany's Social Democrats (SPD) want to extend a freeze on arms exports to Saudi Arabia imposed after the killing of Saudi journalist Jamal Khashoggi, party sources said, setting the stage for a row with their conservative coalition partners.
Under pressure from European allies, many of Chancellor Angela Merkel's conservatives want to end the ban to avoid hurting Germany's commercial reputation and undermining its ambitions to develop a common European defence policy.
The moratorium runs until the end of March.
Two party sources told Reuters on Tuesday that the parliamentary party had backed SPD leader Andrea Nahles in her call for an extension until October.
"It should be agreed with our European partners that equipment that is dependent on German supplies will not be allowed to be used in the Yemen war," said one participant in the meeting.
Germany's BDI Federation of German Industry warned that extending the unilateral ban would hit France and Britain particularly hard, putting at risk projects such as development of a new Franco-German combat jet and other arms deals.
The SPD's stance "endangers joint projects & common European #defence policy. With embargo and proposed 2020 budget, #Berlin is increasingly isolated among its closest allies," BDI defence expert Matthias Wachter said in a Twitter posting.
Germany is also under fire by the United States and other NATO allies for failing to include funding in its latest budget plan to raise the percentage of defence spending to a NATO target of 2 percent of gross domestic product.
The SPD, languishing in opinion polls before four regional elections this year, is keen to woo traditional voters sceptical about arms sales and worried about Saudi involvement in Yemen's war.
The freeze has put a question mark over billions of euros of military orders, including a 10 billion pound deal to sell 48 Eurofighter Typhoon jets to Riyadh that would be led by Britain's BAE Systems.
BAE declined to comment on the SPD's push to extend the export ban.
Among countries opposed to the German government policy are key allies Britain and France.
(Reporting by Andreas Rinke and Andrea Shalal, Writing by Madeline Chambers, Editing by Michelle Martin, William Maclean)