* Britain suspends controversial sale of postal firm stake
* Government says market conditions not right for sale
* Conservatives: Govt in state of "paralysed indecision"
(Adds Royal Mail and Conservative Party comment)
By Peter Griffiths
LONDON, July 1 (Reuters) - Britain has suspended plans to sell part of Royal Mail, the state-owned postal service, due to adverse market conditions, Business Secretary Peter Mandelson said on Wednesday.
The proposed sale of up to 30 percent of the company will not take place until conditions improve, although Mandelson gave no indication of when that might be.
With an election less than a year away, the sale's suspension will help Prime Minister Gordon Brown avoid a confrontation with unions and party members who opposed the sale.
On Monday, Brown said public services will be at the heart of his policy plans for the final months before the election. He has repeatedly clashed with the opposition Conservatives over the two parties' spending plans.
"Market conditions have made it impossible to conclude the process to identify a partner on terms that would give value for money to the taxpayer," Mandelson told the House of Lords, Britain's upper house of parliament. "When market conditions change...we will return to the issue."
The British government had proposed part-privatising the company as part of a package of measures intended to make it more efficient and competitive.
Brown faced opposition from unions and some members of his ruling Labour Party who wanted the Royal Mail to stay fully in public ownership to ensure it retained a proper service across Britain.
The Communication Workers Union (CWU) welcomed the decision.
"The government has not only looked at market forces but has listened to the British public," CWU General Secretary Billy Hayes. "Privatisation was a deeply unpopular suggestion."
Conservative business spokesman Ken Clarke said Labour was "in a state of paralysed indecision on every difficult issue".
"The real reason for delay is that Peter Mandelson cannot persuade his colleagues to back the flagship Bill of his department," he said in a statement.
Royal Mail Chairman Donald Brydon said the government's decision will not solve its "problems of regulation and pension fund deficit".
"The management, for its part, is continuing to forge ahead with its modernisation plan which is unaffected by this announcement," he said.
Private equity group CVC Partners offered just under 2 billion pounds ($3.29 billion) for the Royal Mail stake, but the government is thought to see that as not high enough, the Financial Times reported this week.
Dutch company TNT said this month it was interested in the stake, although it had yet to make a formal offer.
Royal Mail makes a profit but the volume of mail is shrinking because of competition from other operators and increasing use of e-mail and mobile phones. (Editing by Elaine Hardcastle and David Cowell)