By Matthew Bigg

ATLANTA (Reuters) - BP Plc has
turned down Alabama's claim for $148 million in lost government
revenue due to the worst oil spill in U.S. history, the state's
attorney general, Troy King, said Friday.

BP denied the claim because it said there was ongoing
litigation but in fact the energy giant was "playing games"
with Alabama and other states on the Gulf of Mexico coast, King
said in an interview.

"They (BP) said they wouldn't discuss it (the claim)
because there is litigation. They are playing games in my
opinion. BP is taking advantage of the fact that states are in
a budget crisis and they are doing a masterful job," King
said.

BP later said it was evaluating the state's claim and was
in discussion with King over the lawsuit.

"These overlapping discussions have added to the complexity
of the matter and make immediate resolution unachievable at
this time," said BP spokesman Justin Saia in an email. He said
BP has made more than $350 million in payments and investments
in Alabama since the start of the spill in April.

King's comments form part of a growing dispute over how
states, individuals and businesses in Louisiana, Mississippi,
Alabama and Florida should be compensated for losses suffered
as a result of the spill.

BP has set up a $20 billion compensation fund administered
by lawyer Kenneth Feinberg to handle claims but a large number
of lawsuits also have been filed against the company.

Alabama's losses stem from diminished sales, lodging and
fuel tax revenues as tourists avoided the state's coast this
summer because of the spill that spewed millions of gallons of
oil into the Gulf.

The well was capped in July and is due to be finally killed
this weekend.

DISPUTE

Total losses will eventually amount to much more than $148
million and, when compared with calculations other coastal
states made about their own losses, Alabama's claim was
inadequate, said King.

King claimed damages in August from BP in a lawsuit that
will be added to the multi-district litigation that has been
consolidated in federal court in New Orleans, he said.

But King's decision over the suit sparked a clash with
Alabama Governor Bob Riley who disputes the need for litigation
at this point as a means to rectify the state's losses.

In claiming damages, "Governor Riley embarked on a process
that was doomed to fail. I don't know why anybody is surprised
that BP strung him along and refused to pay his claim," King
said.

For his part, Riley blamed King's lawsuit for BP's decision
Thursday to turn down the claim and said that as a direct
consequence he was forced to increase proration for the
education budget by 2 percent.

Some $116 million of the $148 million claimed was earmarked
for the state's Education Trust Fund in order to prevent the
need for $113 million in spending cuts, but now those cuts
would take place, Riley said.

"Troy King filed this lawsuit without consulting me or
local officials on our coast or apparently anyone else but the
lawyers who hope to reap millions of dollars off this
disaster," Riley said in a statement Friday.

"BP said it is not paying the state's initial claim because
of his lawsuit," he said, adding that the company should have
lived up to its obligation as the responsible party. A suit
against BP was premature but should remain an option, he said.
(Reporting by Matthew Bigg, editing by Carol Bishopric)