WASHINGTON (Reuters) - The U.S. and Canadian governments have reached a deal to resolve a dispute over lumber imports which American timber interests are willing to accept, a U.S. trade spokeswoman said on Thursday, adding the final decision now lay with Canadian industry.

But prospects for a final resolution to the decades-long tussle dimmed when angry Canadian industry representatives said the deal was a "terrible" one for them.

The two countries have long been at odds over whether Canada's provinces are subsidizing lumber producers by charging below-market rates to log forests.

The United States slapped countervailing duties on Canada lumber exports in 2002 and is currently sitting on around $4 billion it has collected from the duties.

"Late Tuesday night we reached a tentative agreement with the Government of Canada that would resolve the long-standing softwood lumber dispute between our countries," Neena Moorjani, spokeswoman for the U.S. Trade Representative's office, told Reuters.

"Given the nature of the agreement and ongoing litigation, it will ultimately be up to our respective industries to decide if they want to embrace a solid market-based agreement that can bring some stability to the North American lumber market or if they choose instead many more years of litigation, acrimony and market uncertainty," she said. "The U.S. industry was briefed about the agreement, and despite reservations, has indicated its willingness to accept it."

Sources told Reuters on Wednesday that under the terms of the framework deal, the United States would return most of the money it has collected in duties and limit Canada's market share to around 34 percent.

But one source close to Canadian timber interests said on Thursday industry representatives were very unhappy that the two governments had hammered out the deal without consulting them and that they were likely to reject it.

"The USTR statement is virtually written by the (U.S. lumber) coalition, which was at the negotiating table," the source said. "The deal keeps Canadian lumber limited in the U.S. market forever and they get half a billion dollars as a reward for filing cases and bringing claims proved legally to be wrong. They lost. Now they win. They even get paid. They're going to say no?"

"The Ontario government has already said no," the source added. "The British Columbia government apparently is saying no. The Ontario, Alberta and British Columbia industries say no, although there is plenty of arm-twisting going on this morning."

Speaking on CBC television, Carl Grenier, vice president of the Montreal-based Free Trade Lumber Council, said he thought it was a "terrible deal for Canada."

"It restricts our growth in the U.S. market and means less exports, obviously … half a billion dollars would be given to our direct competitors," he said. The council groups around 40 percent of the Canadian lumber industry.

"This is the old pay-the-mugger argument. We were docked C$5.3 billion without any reason and now they're saying, 'You should be grateful that we're giving you 80 percent back.' Why is that? What is the logic behind leaving a billion dollars behind? There's no logic," said Grenier.

A spokesman for the U.S. industry said it did still have some concerns but broadly backed the framework deal.

"We support the U.S. government's efforts to resolve the dispute. Although the coalition has important concerns about a variety of matters we understand are under discussion between the governments, the coalition could support settlement terms that U.S. officials have described for us," said Harry Clark, attorney for the U.S. industry group Coalition for Fair Lumber Imports.

He declined to give further details.

No one at the office of federal International Trade Minister David Emerson was available for comment.