* IMF and partners to help restructure Mongolia debt, economy

* Deal delayed from last month amid banking rule controversy

* Mongolia due to hold presidential elections in June (Adds detail, context and background)

BEIJING/ULAANBAATAR, May 25 The International Monetary Fund (IMF) said on Thursday it approved a total financial package worth around $5.5 billion to help support cash-strapped Mongolia's efforts to restructure its economy.

The IMF said in a statement that Mongolia was hit hard by the sharp decline of commodity prices and the slowdown in key export markets, and the government is therefore implementing a programme to pave the way to economic recovery.

The IMF has provided a three-year financial arrangement of about $434.3 million to support Mongolia's economic reform programme, with other financial partners such as the Asian Development Bank, the World Bank, Japan and South Korea also providing back-up.

The deal also included a three-year extension to a 15 billion yuan ($2.18 billion) swap agreement with the People's Bank of China.

The extended fund facility will help Mongolia tackle a heavy debt burden and a weak currency. The landlocked nation saw its economy grow at a double-digit annual rate over 2011-2013 as foreign investors rushed in to take advantage of its vast untapped mineral deposits, but clashes with investors, government overspending and declining revenues from commodity exports slowed growth to 1 percent last year.

The IMF support will enable Mongolia to swap $550 million in debt held by the Development Bank of Mongolia for new sovereign bonds worth $600 million due in 2024.

The formal confirmation of the package, first proposed in February, was delayed from last month amid concerns about a controversial clause in Mongolia's legislation that forced "strategically important" mines, such as the Oyu Tolgoi copper-gold mine run by Rio Tinto, to conduct transactions through local banks.

Coal India wins tax-cut boost as environmentalists fret
The government has subsequently annulled the banking requirement in order to push the IMF deal through.

Mongolia has agreed to cut spending, raise taxes and the retirement age, while pledging to maintain a flexible exchange rate and build a stronger regulatory environment for banking and finance.

Candidates running in next month's presidential elections may try to make political capital out of the painful austerity measures introduced by the ruling Mongolian People's Party (MPP), which is fielding Miyeegombo Enkhbhold, currently parliamentary speaker.

Businessman and former martial artist Khaltmaa Battulga is contesting the vote on behalf of the main opposition Democratic Party, while the Mongolian People's Revolutionary Party has nominated former independent Sainkhuu Ganbaatar.

Both challengers have gained popularity partly through their resource-nationalist rhetoric and their suspicion of foreign investors. ($1 = 6.8878 yuan) (Reporting by Sue-Lin Wong and Yawen Chen in BEIJING, Terrence Edwards in ULAANBAATAR; Editing by Michael Perry & Shri Navaratnam)