UPDATE 1-Audi Formula One deal with McLaren becoming unlikely -source

(Adds background, Aston Martin team boss quote)

HAMBURG, May 5 (Reuters) - An agreement for Volkswagen's premium brand Audi to join Formula One by investing in British luxury sports carmaker McLaren is becoming increasingly unlikely, a person familiar with the project told Reuters on Thursday.

"The price expectations are too far apart," the person said, adding that while the project had not yet failed, its prospects are now close to zero.

Meanwhile, talks with Swiss-based Sauber, which runs the Ferrari-powered Alfa Romeo team, and Williams are continuing, the person said. Both Audi and Volkswagen declined to comment.

Manager Magazin reported earlier on Thursday that talks with McLaren were close to failing after months of negotiations.

Volkswagen has not previously been involved in Formula One but has worked with Red Bull, notably in the world rally championship.

On Monday, VW Chief Executive Herbert Diess said that its Audi and Porsche brands would join Formula One, after convincing the German automaking group that the move would bring in more money than it would cost.

A source had told Reuters in March that Audi was ready to offer around 500 million euros ($556.3 million) for McLaren as a means to enter.

Williams and Aston Martin, both currently powered by Mercedes engines, have said they would be interested in future ties with Audi.

"I think for any team who has not a manufacturer on his side, it's super appealing to have this possibility," Aston Martin team boss Mike Krack told reporters at last month's Emilia Romagna Grand Prix.

Williams team principal Jost Capito is a previous head of Volkswagen Motorsport. (Reporting by Jan Schwartz/Alan Baldwin in London; Writing by Maria Sheahan, editing by Kirsti Knolle and Bill Berkrot)