Russia has made no decision yet on whether to extend the duration or ease the terms of a sovereign loan to Cyprus, a government source told Reuters on Monday.

European Union officials, who over the weekend agreed a 10 billion euro bailout for the Mediterranean island, have said they expect Russia to extend its 2.5 billion euro ($3.27 billion) loan by five years, until 2021, and refinance terms.

A proposed levy on the island's bank deposits, which was a central element of the EU rescue package, should not alter domestic capital flows, a senior Russian official was quoted as saying.

Officials have also said Russian investors are interested in buying a majority stake in Cyprus Popular Bank and increasing their holdings in Bank of Cyprus - the two biggest banks on the Mediterranean island.

The involvement of any Russian investors - private or state - in recapitalization of the island's struggling banks is still a matter of talks, the government source said.

"There has been no decision yet," the source said.

Russian banks had about $12 billion placed with Cypriot banks at the end of 2012, according to Moody's rating agency. Based on official Russia's central bank data, that would suggest an increase of around $3 billion from 2011.

($1 = 0.7654 euros)

(Moscow Newsroom; Editing by John Stonestreet)