MILAN, July 9 (Reuters) - U.S. hedge fund Elliott has launched contractual proceedings that could give the investment company the powers to decide the future of indebted Italian soccer club AC Milan, a source familiar with the matter said on Monday.

Elliott gave a financial lifeline to Chinese businessman Li Yonghong last year to complete the acquisition of the Serie A club from former Italian prime minister Silvio Berlusconi.

The fund lent additional money to the team to fund the purchase of players and repay the club’s debts with banks.

Elliott also stepped in last month when Li failed to make a final capital injection agreed under the terms of the purchase deal.

When Li failed to repay Elliott by last Friday, he opened the way for the process kicked off on Monday under which the fund installed its own managers on top of a Luxemburg-based holding chain overseeing AC Milan, effectively taking over control of the club.

In a final step, the process could see the U.S. fund soon become the majority owner of the seven-times European Champions known as the Rossoneri (red and blacks), the source added.

Other sources familiar with the matter have said in the past that the hedge fund was not interested in managing a soccer club in the long term but might seek to sell it on at a profit after first putting it back into shape.

Meanwhile Li is looking for ways to pay back Elliott by bringing in other investors and remain a minority shareholder, a second source close to the matter added.

It was unclear whether Li has room to contest the contractual proceedings launched by Elliott.

The Chinese businessman has been looking for months for new investors to share the financial burden of the loss-making club, which last month was banned from next season’s Europa League competition because of its uncertain finances.

The club is expected to have closed the financial year to the end of June with a loss of 75 million euros ($88 million), a source close to the matter has told Reuters.

The Ricketts family, owner of the Major League baseball team Chicago Cubs and U.S. television tycoon Rocco Commisso, who is owner of North American soccer team New York Cosmos, are among those interested in acquiring a controlling stake in AC Milan.

AC Milan declined to comment, while Li could not immediately be reached for comment. ($1 = 0.8511 euros) (Reporting by Elvira Pollina, writing by Agnieszka Flak)