(Updates with reaction from Abdel Aziz)

By Estelle Shirbon

PARIS, Oct 20 (Reuters) - The European Union held talks on Monday with Mauritania's military government formed after an August coup, and threatened to apply sanctions if it failed to move to restore constitutional rule within a month.

The EU said it would provide only direct humanitarian aid to the Mauritanian population, while minimising cooperation with the military-appointed administration set up after the Aug. 6 coup that deposed President Sidi Mohamed Ould Cheikh Abdallahi.

In a statement issued after Monday's talks in Paris, the EU said the new military leaders of the west Saharan Islamic state had made "fundamentally unconstitutional" proposals.

"The European Union did not receive any satisfactory proposals," the 27-nation bloc said in the statement issued by France, which holds the rotating EU presidency.

The EU wants Mauritania to bow to international demands for the release and restoration to office of Abdallahi, and said no progress was made in the negotiations.

"The proposals and commitments from Mauritania do not include the immediate and unconditional release of the legitimate president, and they remain fundamentally unconstitutional and illegitimate," the EU statement said.

"If there are no new elements within a month, the consultations will be terminated and appropriate measures will be proposed."

In Nouakchott, Abdallahi supporters welcomed the EU stance.

"The junta has not managed to deceive the European Union. The EU is leaving open a last chance, but with this ultimatum we hope the junta will realise they don't have a chance, they're in an impasse," Mohamed Ould Maouloud, leader of the National Front for the Defence of Democracy coalition told Reuters.

"KEEPING DOORS OPEN"

Abdallahi, Mauritania's first democratically elected president, who won a multi-party vote last year, was toppled by a group of generals led by presidential guard chief Mohamed Ould Abdel Aziz, whom the president had tried to dismiss.

Abdel Aziz said the EU's call for the restoration of constitutional rule within a month was unrealistic, and that he did not welcome international involvement.

"It is a problem that concerns Mauritanians before everyone else," he told journalists in Nouakchott.

The United States has imposed travel restrictions on some members of the military government and frozen some of its aid to Mauritania, a big exporter of iron ore which also started producing oil in 2006. France, the country's former colonial ruler, and the World Bank have also suspended some aid.

The African Union has suspended Mauritania over the coup. However, several AU members in the region appear to have given tacit approval to the military takeover.

Aziz and other coup leaders accused Abdallahi of blocking the country's institutions and of failing to tackle economic and security challenges like high food and fuel prices and attacks by al Qaeda militants. (For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com/) (Additional reporting by Hachem Sidi Salem and Vincent Fertey in Nouakchott; Editing by Pascal Fletcher and Daniel Magnowski)