MILAN (Reuters) - Italian bank Banco BPM is preparing to give Citigroup and Lazard a mandate to advise over an unsolicited takeover bid by rival UniCredit, three people close to the matter said.

Banco BPM, Citi and Lazard all declined to comment.

Banco BPM has rebuffed UniCredit's 10.1 billion euro ($10.7 billion) all-share offer, saying it undervalues the bank and creates problems for its own takeover of Anima Holding, Italy's biggest independent fund manager.

Citi and Lazard are already working with Banco BPM on the 1.6 billion euro Anima bid which BPM launched on Nov. 6 to boost its fee revenue in the face of declining interest rates.

The three sources said the two advisers were also the natural choice to advise on the best course of action in relation to the UniCredit move, and the mandate would be formally expanded.

Banco BPM owns 22.4% of Anima, which also partners with Monte dei Paschi di Siena (MPS). Shortly after unveiling the Anima bid, BPM bought 5% of MPS from the Italian state, while Anima bought 3%.

Italy's Treasury has long seen a merger with BPM as the best solution for MPS, sources with direct knowledge of the matter have previously told Reuters.

Rome rescued the Tuscan bank in 2017 and must eventually return it fully into private hands, because of European Union rules on state aid.

UniCredit CEO Andrea Orcel said last month that his bank could not afford to be sidelined as domestic consolidation heated up.

UniCredit had already prepared a bid for Banco BPM in 2022 before shelving it at the eleventh hour, sources with direct knowledge of the matter previously told Reuters.

Banco BPM is a natural target because of its large market share in Milan's wealthy Lombardy region, where UniCredit is traditionally weak despite being Italy's second biggest bank.

Following the initial rejection, Banco BPM's board will be able to give shareholders its official stance on the current bid only after UniCredit completes the lengthy regulatory process that will lead to the publication of the prospectus.

($1 = 0.9448 euros)

(Reporting by Andrea Mandala and Valentina Za in Milan; Emma-Victoria Farr in Frankfurt; editing by Gavin Jones)