By Madeline Chambers

BERLIN (Reuters) - German Chancellor Angela Merkel's cabinet agreed on Wednesday to accelerate the construction of 2,800 km of new high-voltage power lines to push forward the country's shift to renewable energy.

However, in a sign of the complexities of formulating energy policy in Europe's biggest power market, two of her ministers said they had failed to agree a common position on a proposed reform of Europe's system of permits to cut carbon emissions.

Under the nationwide grid plans, the new transmission lines will be completed within four years from a previously planned 10 years and cost about 10 billion euros ($13.21 billion).

The cabinet agreed to mainly prioritize the construction of lines to transport power from wind turbines near the coast and offshore to industrial areas in southern and western Germany.

Germany's ambitious switch to renewable power sources is the result of a major policy reversal from Merkel last year. After the Fukushima disaster in Japan, she decided to speed up the closure of nuclear plants.

One obstacle in achieving her targets, including a goal for renewable energy to account for 35 of German power production by 2020 from around 23 percent now - is the limited capacity and routing of existing grids.

In addition to the new lines, the draft law envisages expanding existing high voltage grid by about 1,500 km.

"(This agreement) shows that we are absolutely on time with our plans... This is a huge step in the expansion of the grid, a huge step for the switch to renewables," said Economy Minister Philipp Roesler.

In a bid to deal with strong local resistance to grid expansion, the planned law sets limits on the legal options opponents can pursue.

Another important contribution came from Germany's 16 federal states who signaled they would let the federal grid operator Bundesnetzagentur coordinate plans, rather than insisting on individual processing, which causes delays.

However, more needs to be done: Distribution grids that take power from high voltage networks served by big power stations and transport it to consumers must also be adapted to cope with an increasing number of wind and solar power installations.

CO2 PERMIT ROW

At a news conference to discuss progress on Germany's "green revolution", Roesler and Environment Minister Peter Altmaier said they were still at odds on EU plans to reform carbon emissions permits but vowed to talk again next year to try to find common ground.

The dispute between the ministers, who share responsibility for energy policy, has been a major factor in holding up any agreement on an EU proposal to withdraw some emissions permits from the market to stop a price slump.

Altmaier said he expected the European Commission to make a new proposal after the European Parliament had dealt with the subject in February.

"As soon as this proposal is on the table, the German government will take a view on it," said Altmaier.

Roesler also signaled a willingness to talk.

"We both have the goal that we want a well-functioning emissions certificate market," he told reporters.

Altmaier backs the EU proposed reform of the Emissions Trading Scheme (ETS), a main pillar of the bloc's efforts to cut CO2 emissions, but Roesler opposes meddling in the market.

Benchmark EU carbon prices were up 1.44 percent at 7.03 euros a metric ton at about 1150 GMT. ($1 = 0.7568 euros)

(Additional reporting by Markus Wacket, Vera Eckert; Writing by Madeline Chambers; Editing by Noah Barkin and David Cowell)