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By David Bailey

MINNEAPOLIS (Reuters) - Minnesota's state government is expected to shutdown going into the July 4 holiday after Democratic Governor Mark Dayton and Republican legislative leaders failed to reach a budget deal on Thursday.

Parts of the government had already begun to shut down on Thursday with a midnight budget deadline, including some websites and dozens of highway rest stops on one of the biggest travel days of the year.

The budget impasse means that some 23,000 of the roughly 36,000 Minnesota state employees will be furloughed and state parks and campgrounds closed ahead of what is usually their busiest stretch of the year for the July 4 holiday.

Dayton and Democratic legislative leaders Senator Tom Bakk and Representative Paul Thissen met for more than a week with Republican leaders including House Speaker Kurt Zellers and Senate Majority Leader Amy Koch. The leaders met at least three times on Thursday in the governor's office.

"I deeply regret that the last week of intense negotiations between the Republican legislative leaders and Senator Bakk, Representative Thissen and myself have failed to bridge the divide between us," Dayton said in a speech.

When asked if there was any way to avoid a shutdown at midnight, he told reporters, "I'm not aware of it."

Dayton said his last proposed two-year general fund budget was $35.7 billion, but the differences between his approach and the Republican leaders had not changed since January. The gap between the two sides stood at $1.4 billion, he said.

Republican leaders had asked Dayton to call a special session to approve a temporary extension of funding for 10 days while the budget negotiations were completed, saying that they believed they were close to a budget deal.

Dayton dismissed the offer as "a publicity stunt."

(Reporting by David Bailey; Editing by Greg McCune)

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