MADRID (Reuters) - Spanish industrial manufacturers are preparing to lobby against a government energy reform plan that they say will raise electricity prices and hurt business competitiveness, the head of one business association told Reuters on Thursday.

Prime Minister Mariano Rajoy has proposed a 6 percent levy on Spanish power generation as part of an energy sector overhaul that is expected to inflate consumers' utility bills. The energy reform still needs Parliamentary approval.

"Big industry has realised that this is a huge problem ... We're talking about incremental price increases in electricity that these businesses will not be able to pass off (to clients)," Carlos Reinoso, head of paper manufacturers association ASPAPEL, said in a telephone interview.

Several associations will publish a letter on Friday criticizing the reform, he said, with a range of industries directly employing 2.4 million people - and ranging from automobile to food - expected to join the campaign.

Reinoso said a rise in electricity prices would hurt business competitiveness in international markets, which companies have come to rely on due to weak domestic demand.

Spain's co-generation sector, such as paper manufacturers, which use biomass as a source of energy - one of the targets of the energy reform - will be among the hardest hit, he said.

These companies will suffer a triple whammy: a rise in electricity bills, a 6 percent tax on all kinds of electricity generation and a levy on the use of gas in renewable energy generation.

In a research note, analysts at Espirito Santo Investment Bank said: "A significant increase in tariffs could imply some of these key plants for electricity and gas demand stopping their production in Spain."

(Reporting by Jose Elias Rodriguez; Additional reporting by Tracy Rucinski; Editing by Julien Toyer and David Holmes)