MILAN, Dec 5 (Reuters) - UniCredit's board is working to pick by early January a new candidate to chair the Italian bank as it prepares to hand Chief Executive Andrea Orcel a new contract in spring 2024, two sources close to the matter said.

The list of nominees the board will propose to the annual shareholder meeting is expected to include a new candidate to succeed current Chairman Pier Carlo Padoan, the sources said, asking not to be named as the information is confidential.

UniCredit declined to comment.

The bank has been striving to rebuild relations with the Rome government after Orcel in 2021 walked away from buying state-owned Monte dei Paschi di Siena (MPS).

The former head of investment banking at UBS had returned to Italy, after building his career abroad, to lead UniCredit in the spring of that year.

Prime Minister Giorgia Meloni's rightist administration is wary of Orcel and the dealmaking skills he honed over three decades in investment banking, government sources have previously told Reuters.

The board's new chair could help strengthen ties with Rome but Padoan, 73, an economist who was finance minister under centre-left prime ministers Matteo Renzi and Paolo Gentiloni, is seen as ill suited in that respect.

Among potential candidates to succeed him is the current head of UniCredit's corporate governance and nomination committee, Lamberto Andreotti.

Andreotti, 73, is the former CEO of Bristol-Myers Squibb, and son of several times Prime Minister Giulio Andreotti.

UniCredit in September hired two executive search firms to help its board select candidates for its renewal.

Normally, the bank would want the future chair to work on the board's selection process, which would be possible with Andreotti as he is already on the board.

Padoan became a board member prior to being named chair and worked with headhunters on selecting board nominees.

Another candidate who has been considered is Pier Francesco Saviotti, a veteran Italian banker who worked with Orcel at Merrill Lynch.

However, a separate person with knowledge of the matter ruled out Saviotti as well as another former investment banker, Massimo Tononi, who currently chairs Banco BPM's board and has been mentioned in the Italian press.

Daniele Franco, who served as economy minister with Meloni's predecessor Mario Draghi, is also a possible option but his chances are slim, the sources said.

A former Bank of Italy official, Franco is currently one of five candidates to become the next president of the European Investment Bank (EIB), but Spanish Finance Minister Nadia Calvino is leading the race.

While he has good relations with Economy Minister Giancarlo Giorgetti, Franco's ties with the top tier of Meloni's office are viewed as too weak. (Additional reporting by Andrea Mandala and Gianluca Semeraro Editing by Mark Potter)