U.S. seeks return of $2.5 billion California high-speed rail funds

(Reuters) - The U.S. Transportation Department said on Tuesday it will cancel $929 million in federal grant funds awarded by the Obama administration for a California high-speed rail project and is "actively exploring every legal option" to seek the return of $2.5 billion the state has already received.

California Governor Gavin Newsom said last week the state will dramatically scale back a planned $77.3 billion high-speed rail project that has faced cost hikes, delays and management concerns, but will finish a smaller section of the line.

The Transportation Department's Federal Railroad Administration said in a letter it wanted to halt funding because the state had "failed to make reasonable progress." It cited Newsom's announcement to scale back the project.

Newsom's office did not immediately respond to a request for comment.

California planned to build a 520-mile (826.8 km) system in the first phase that would allow trains to travel at speeds up to 220 miles per hour (354 kph) in the traffic-choked state from Los Angeles to San Francisco and begin full operations by 2033.

The Obama administration awarded the state a total of $3.5 billion in 2010 and California voters in 2008 approved nearly $10 billion in bond proceeds.

Newsom, who can challenge the government's action, said last week he was "not interested in sending $3.5 billion in federal funding that was allocated to this project back."

(Reporting by David Shepardson; Editing by Phil Berlowitz and Dan Grebler)