By Renee Maltezou and Jan Strupczewski

BRUSSELS/ATHENS (Reuters) - Greek Prime Minister Alexis Tsipras summoned an urgent meeting of his cabinet on Friday after euro zone partners warned Athens it had until the weekend to accept a cash-for-reform deal or plunge toward default.

Despite angry rhetoric and accusations of "blackmail", negotiations were continuing in Brussels to find a last-ditch compromise to keep Greece in the euro zone to avoid a political train-wreck, economic chaos and financial market disruption.

Greek Finance Minister Yanis Varoufakis expressed frustration with the stance adopted by lenders, whom he accused of toughening their demands every time Greece made a concession but said the differences could still be bridged.

He said there was no foundation for the increasing speculation in Athens that Tsipras could call snap elections if a deal cannot be reached.

"There is no reason for a referendum or elections, or a failure in the negotiation. Common sense demands a deal," he told Greece Antenna TV.

In a carrot-and-stick approach, the euro zone offered to release billions in frozen aid if Greece accepted and implemented pension and tax reforms that are anathema to its leftist government, elected in January on a promise to end austerity.

They also made a gesture toward Tsipras' demands for debt relief by offering to reaffirm a 2012 pledge to consider stretching out loan maturities, lowering interest rates and extending an interest payment moratorium on euro zone loans to Greece, a senior EU official said.

However, a Greek government official rejected as "totally inadequate" the creditors' offer to extend its existing bailout program by five months, as the leftist premier flew home to Athens.

"NOT OVERLY OPTIMISTIC"

German Chancellor Angela Merkel and French President Francois Hollande met Tsipras on the sidelines of an EU summit to coax him to accept an offer to fill Athens' empty coffers until November in return for painful reforms.

If Greece does not clinch an agreement at the weekend to unlock funds, it is set to default on an International Monetary Fund loan on Tuesday, possibly sparking a bank run, capital controls and raising doubts about its future in the euro zone.

Tsipras sounded defiant on leaving the summit, telling reporters Greece would fight for the European principles of democracy, solidarity, equality and mutual respect.

"These principles were not based on blackmail and ultimatums," he said in English. However, he did not rule out accepting a deal.

European Council President Donald Tusk retorted: "It is not political blackmail when we repeat day after day that we are very close to this day (June 30) when the game is over."

Merkel said she and Hollande had urged him in a 45-minute private meeting to accept the creditors' "generous" offer.

"We have taken a step toward Greece," she said. "Now it is up to the Greek side to take a similar step."

Both she and Hollande said Saturday's meeting of euro zone finance ministers would be the decisive moment for a deal since time was running out to secure German parliamentary approval in time to release funds needed to avert a Greek default.

The creditors laid out terms in a document handed to Greece on Thursday. It said Athens could have 15.5 billion euros in EU and IMF funding in four instalments to see it through to the end of November, including 1.8 billion euros by Tuesday as soon as the Greek parliament approved the plan.

The total is barely more than what Greece needs to service its debts over the next six months and contains no new money. Further funding would require a third bailout program, which is politically impossible for the moment in Athens and Berlin.

European Commission President Jean-Claude Juncker, who spent part of the night thrashing out the issues out with Tsipras, said there was no ultimatum to Greece and he was "quite optimistic but not overly optimistic" there would be a deal.

"PLAN B"

The Eurogroup ministers will meet at 2 p.m. (8:00 a.m. EDT) on Saturday and Greece will be asked whether it accepts a revised offer from the European Commission, the European Central Bank and the International Monetary Fund, a euro zone official said.

If Greece refuses, the ministers will move on to discussing a "Plan B" on preparing to limit the damage from a Greek default to Greek banks and other euro zone countries and markets, the official said.

Two senior EU officials involved in the discussions put the chances of an agreement at just over 50 percent.

Merkel and Hollande have refused to talk publicly about a "Plan B", saying all their efforts are focused on getting an agreement to keep Greece in the euro zone. They are expected to speak to Tsipras again by telephone before Saturday's meeting.

Talks to reconcile the creditors' and Greek positions were continuing behind the scenes, even though Greece continued to denounce the lenders' proposals.

Earlier, Varoufakis had another blast at the creditors in an interview with Irish radio, saying their demands for tax increases and pension cuts as conditions for disbursing aid were putting Greece in an impossible position.

"I am against increasing the corporate tax, but then again I am against raising the tax on hotels and against cutting the pensions of people who live below the poverty line," Varoufakis said on Irish national radio RTE.

"These issues are putting me and my government in an impossible position, having to make a bad choice among really hard, difficult bad choices."

But he did not flatly rule out accepting the terms.

Dramatizing the choice facing Athens, Germany's member of the European Commission, Guenter Oettinger, said Greece had five days left to avoid an exit from the euro zone.

DIVIDED

Euro zone finance ministers are divided over whether a default would necessarily lead to Athens leaving the 19-nation single currency area, which would undermine the principle that membership is irrevocable.

Failure to pay the 1.6 billion euro installment to the IMF on Tuesday could trigger a bank run, capital controls to curb deposit flight and possibly the issuance of IOUs or a parallel currency.

China, a growing economic partner of the EU, offered a vote of confidence in the euro zone on Friday ahead of Premier Li Keqiang's visit to Europe next week, saying it was sure Greece's talks with creditors would go positively.

Confidential documents drawn up by Greece's creditors and seen by Reuters showed the country's debt would remain sustainable, even under a worst-case scenario envisaged by the IMF, if the maturities on euro zone loans were extended and interest rates were cut, without the need for a write-down.

The calculations are regarded as crucial to persuade German lawmakers to agree to the aid disbursement.

They showed that in the most severe case, Greek debt would require substantial "reprofiling" and improved lending terms but no "haircut" nor budgetary costs for the lenders.

Tsipras and Varoufakis have insisted so far that a commitment to debt relief is essential for Greece to accept any deal, while Germany and its allies had refused up to now to discuss the issue until Athens enacts and implements the reform program to complete its current bailout.

(Additional reporting by Matthias Sobolewski in Berlin, Juline Ponthus, Alastair Macdonald, Tom Koerkemeier, Barbara Lewis, Francesco Guarasco, Adrian Croft and Andreas Rinke in Brussels; George Georgiopoulos, Lefteris Karagiannopoulos in Athens; Writing by Paul Taylor; Editing by Sophie Walker and Philippa Fletcher)