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MILAN (Reuters) - An Italian government decree that will start liquidation proceedings for two ailing Veneto-based lenders, Banca Popolare di Vicenza and Veneto Banca, is set to be delayed to Sunday, a government source said.

A cabinet meeting to approve the decree had been due to take place on Saturday but the government is still working on the measure.

The European Commission on Friday gave preliminary approval for the Italian plan to wind down the two banks with state money in a move that may allow Rome to solve its latest banking crisis on its own terms.

The decree is expected to split the two lenders' assets into "good" and "bad" banks. The country's top retail bank Intesa Sanpaolo ISP.MI is set to buy the good assets for one euro, leaving the state to foot the bulk of the bill for losses stemming from the banks' bad loans, legal risks and restructuring costs.