* Suzuki says it wants to end VW alliance
* VW says Suzuki's diesel engine deal with Fiat violates partnership
* VW demands Suzuki comply with contract within "several weeks"
* Suzuki says it hasn't breached contract
* Suzuki shares fall 2.8 pct. (Adds Suzuki announcement, details)
By Tim Kelly and Mayumi Negishi
TOKYO/FRANKFURT, Sept 12 (Reuters) - Suzuki Motor is seeking to end its two-year old alliance with Volkswagen (VOWG_p.DE) after the German carmaker accused it of violating their partnership pact.
Suzuki will ask Volkswagen to sell its 19.9 percent stake in the company, the Japanese company said in a statement to the Tokyo Stock Exchange on Monday. In return, Suzuki said it will offload its 1.5 percent stake in Volkswagen.
The decision will end an alliance forged in December 2009 that at the time was billed as a partnership of equals to bolster VW's presence in India for small cars and give Suzuki access to technology it could not afford to develop on its own.
Suzuki's divorce filing comes after Volkswagen said on Sunday a deal by Suzuki to source diesel engines from Fiat hurt cooperation.
While annoyed with its Japanese ally, Volkswagen said earlier it would keep the stake it bought in December 2009 for 1.7 billion euros ($2.3 billion) as part of a strategic partnership with the maker of the Jimmy and Grand Vitara.
Volkswagen said it would give Suzuki several weeks to remedy the infringement. This "does not mean the end of the partnership," a Volkswagen spokeswoman said Sunday.
VW is annoyed that Suzuki stuck with long-time engine partner Fiat late in June when picking it to supply its Hungarian-built SX4 crossover with a 1.6-litre diesel engine.
Suzuki has been buying 2.0-litre diesel engines from Fiat Powertrain Technologies since 2006 for the SX4, manufactured in Esztergom together with the Fiat Sedici, which shares the same underpinnings.
Ahead of its announcement, Suzuki shares fell 2.8 percent at 1,484 yen in Tokyo, compared with a 3.2 dip in the benchmark Nikkei 225 index.
STALLED PARTNERSHIP
Suzuki said its chairman would hold a news conference at 0800 GMT.
After agreeing to cooperation in 2009, VW and Suzuki have no joint projects and relations have headed south. Suzuki in July insisted there was a "need to return to the starting point, including the ownership ratio."
Suzuki Chief Executive Osamu Suzuki signalled his unhappiness over the deal in a July 1 blog in Japan's leading business daily, Nikkei.
Suzuki's ire worsened when VW classified it as an associate to be carried at equity -- an accounting term typically reserved for holdings of at least 20 percent where VW can "significantly influence financial and operating policy decisions."
"It is there, in written form, and it is being explained this way to their shareholders. This came as a complete shock, and we struggle to see how they are influencing us in any way," Executive Vice president Yasuhito Harayama, in charge of relations with VW, told reporters in July.
The deal with Volkswagen is not the first time the Japanese carmaker has tied itself to one of the big global automakers.
In 1998, Suzuki entered into a strategic partnership with General Motors , which took a 17.4 percent stake in the Japanese firm.
That alliance began to unravel in 2006 when the U.S. car company sold most of its stake as it scrambled for cash amid ballooning losses. (Editing by Vinu Pilakkott)
