* Court cuts compensation payment by 190 million euros

* Damages over takeover battle for publisher Mondadori

* Verdict blow to Italy's troubled prime minister

MILAN - A Milan appeals court on Saturday ordered Silvio Berlusconi's holding company to pay 560 million euros ($801 million) in compensation to rival CIR , dealing a further blow to the weakened Italian prime minister.

The appeals court's ruling over a 1991 takeover battle for leading Italian publisher Arnoldo Mondadori Editore cut a previous compensation order by around a quarter.

Berlusconi this week tried to pass a measure that would have suspended the penalty but had to hastily backpedal due to a lack of support from coalition members and a public outcry.

Berlusconi's Fininvest holding won control of Mondadori in the early 1990s at the expense of CIR thanks to the ruling of a Rome judge who was later sentenced for corruption.

In 2009 a Milan court ordered Fininvest to pay 749.9 million euros in damages to CIR. Fininvest, which controls Italy's biggest private broadcaster Mediaset , appealed against decision.          

Fininvest's Chairman Marina Berlusconi said in a statement the company would now take the case to Italy's top appeals court.

"We are certain we are in the right and we must believe our reasons will eventually be recognised," she said, adding this was the latest episode in a years-long "wild aggression" against her father.

PROVISION PULLED

A provision inserted this week in a package of budget measures would have forced appeal judges to suspend compensation orders for more than 20 million euros until a final verdict, on payment of a guarantee. The provision was pulled before the decree was signed off.          

Berlusconi said on Thursday it may be reinstated when the budget decree goes through parliament to be converted into law.

The measure outraged the opposition and deepened rifts within the ruling coalition as key ally the Northern League and Economy Minister Giulio Tremonti distanced themselves from it.

Italy's centre-right government is struggling after severe setbacks in local polls and a referendum. A sex scandal and fraud trials have hurt Berlusconi's popularity against the backdrop of lacklustre economic growth.

Analysts said any impact on Mediaset or Mondadori shares would be short-lived as the decision was unlikely to alter the two companies' normally generous payout policies.

The verdict has immediate effect but Fininvest could ask the court to suspend the payment until a final ruling.

Analysts expected it to boost the share price of CIR, the conglomerate belonging to Berlusconi's arch-rival Carlo De Benedetti who also owns left-leaning publisher Gruppo Editoriale L'Espresso .

($1=.6991 Euro)