By Tim Kelly and Katya Golubkova

TOKYO (Reuters) - Japan and the United States should avoid confrontation about the steel industry and work together amid competition from China, the world's top steelmaker, leading prime ministerial candidate Shinjiro Koizumi said on Saturday.

Sources told Reuters on Friday that a powerful U.S. national security panel reviewing Nippon Steel's $14.9 billion bid for U.S. Steel faces a Sept. 23 deadline to recommend whether the White House should block the deal.

Koizumi, Japan's former environment minister, said at a debate on Saturday that Japan and the U.S. should not confront each other when it comes to the steel industry but to face together the 'shared challenge' coming from China's steel industry.

"If China, producing cheap steel without renewable or clean energy, floods the global market, it will most adversely affect us, the democratic countries playing by fair market rules," Koizumi said.

Nippon Steel's key negotiator on the deal, Vice Chairman Takahiro Mori, said last month that his company and other Japanese steelmakers were urging Tokyo to consider curbing cheap steel imports coming from China to protect the local market.

On Sunday, Nippon Steel and U.S. Steel sent a letter to U.S. President Joe Biden about their deal, as Biden, Democratic presidential nominee Kamala Harris and Republican presidential nominee Donald Trump have all opposed the merger.

"We are also in the midst of elections, just like the U.S., and during elections, various ideas may arise. Overreacting to each of these would, in my view, call into question diplomatic judgment," Koizumi said when asked about the deal.

Sanae Takaichi, Japan's minister in charge of economic security and another prime ministerial candidate, also defended the deal during the same debate attended by eight other Liberal Democratic Party's (LDP) leadership contenders on Saturday.

"It appears they are using (the Committee on Foreign Investment in the United States) CFIUS to frame this as an economic security issue," she said.

"However, Japan and the U.S. are allies, and the steel industry is about strengthening our combined resilience."

The 43-year-old son of former Prime Minister Junichiro Koizumi, the junior Koizumi, is seen as a leading contender in the Sept. 27 race to pick the LDP's new leader, who will become the next prime minister due to the party's control of parliament.

Koizumi said on Saturday that he would seek a dialogue with the North Korean leadership to resolve the issue over the abduction of Japanese citizens kidnapped by North Korean agents in the 1970s and 1980s.