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* Severn Trent rejected 2,200 pence/share offer late Friday
* Two major shareholders urge Seven Trent to engage in talks
* Shares fall 5.9 pct
By Anjuli Davies and Chris Vellacott
LONDON, June 10 (Reuters) - The Canadian-led consortium trying to buy Britain's Severn Trent threatened to walk away after its third approach was rejected, prompting two of the water utility's major shareholders to urge a return to talks.
Shares in the British company dropped almost 6 percent on Monday after it rejected the consortium's proposed $8.2 billion offer, ahead of a deadline on Tuesday for a firm bid.
Borealis Infrastructure, part of Canadian pension fund OMERS, a Kuwaiti sovereign wealth fund and Britain's Universities Superannuation Scheme want to buy Severn Trent for its steady cash flows.
But the utility, which has 7.7 million customers mainly in central and western England and Wales, said the latest offer of 2,200 pence per share failed to reflect its long-term value and future potential.
A source close to the consortium told Reuters that no talks had been held since May 14.
One of Severn Trent's 10 biggest shareholders told Reuters on Monday the company should start engaging with the consortium with the aim of achieving an offer of more than 2,300 pence per share.
"We certainly encourage them to engage and protect the rights of shareholders," the investor said, on the condition of anonymity. "(But) any price below 2,300 pence per share isn't worth being considered. Let them walk away, they don't deserve assets at this price."
A second investor, one of the 15 largest, said it was concerned Severn Trent was playing a "very dangerous game".
"The Severn Trent people are being a little pig-headed," the investor said, also on the condition of anonymity.
"I think we're pretty much at a reasonable price and the fact they are not really engaging with them seems a bit strange. It's not an unreasonable offer and the strength of the rebuttal doesn't seem proportional to that."
Severn Trent, in common with Britain's other water and sewerage firms, has stable cash flows and operates in a favourable regulatory environment.
Michael Rolland, President and CEO of Borealis, speaking on behalf of the consortium, said on Monday that Severn Trent had shown no interest in discussing its latest proposal.
"In the absence of any such engagement, there will be no further proposal from the consortium and no offer for Severn Trent shareholders to consider," he said.
According to British takeover rules, the consortium has until 1600 GMT on Tuesday to make a formal offer for Severn Trent or walk away.
Severn Trent chairman Andrew Duff said the board had acted in the best interest of shareholders in rejecting the latest offer, which it said was only 3.5 percent higher than the previous approach.
Shares in Severn Trent closed at 2,070 pence on Friday, after earlier hitting an all-time high of 2,200 pence.
They fell further on Monday, down 5.9 percent at 1,949 pence by 1021 GMT, but still trading well above the level of about 1,820 before news of an approach was made public in May.
The chief strategist at stockbroker Central Markets, Richard Perry, said the market had not completely ruled out a new approach for Severn Trent.
"There have now been three bids in a row rejected," he said.
"However, the stock is still massively higher than the 1,830-1,840 (pence) level where it was in May, and the market still seems to be factoring in some new approach."