* Russia had $2 bln worth of arms contracts with Libya
* Ban brings Russia in line with Feb. 26 U.N. sanctions
* Moscow opposes military intervention in Libya
(Adds details on sanctions, background)
MOSCOW, March 10 (Reuters) - Russia will ban all weapons sales to Libya, the Kremlin said in a statement on Thursday, effectively suspending billions of dollars worth of arms contracts with the government of Muammar Gaddafi.
The Kremlin decree brings Moscow in line with an arms embargo and other punitive measures imposed in a Feb. 26 United Nations Security Council resolution against Libya, where rebels are fighting to oust long-time leader Gaddafi.
But Russia, which holds the power of veto on the U.N. Security Council, has warned it opposes military intervention in Libya even as the United States and NATO weigh potential options in support of anti-Gaddafi rebels, including a no-fly zone.
Russia, the world's second-largest arms exporter after the United States, was one of the main weapons suppliers to Libya.
Thursday's order, signed by President Dmitry Medvedev, "bans the export from the Russian Federation to Libya as well as the sale, delivery and transfer... of all types of arms and related materials, including weapons and ammunition, combat vehicles and military hardware", the Kremlin said.
To ensure compliance, it added Russia would inspect all cargo to and from Libya if it suspects it may be hiding military equipment or supplies. The sanctions also ban financial loans or training aimed at bolstering Libya's military.
Russia's state-owned arms export monopoly Rosoboronexport on Wednesday said it had lost $2 billion worth of arms contracts with Gaddafi's government due to the U.N. sanctions against Tripoli.
The daily Kommersant reported last week Russia had also been near to closing deals to sell military aircraft and anti-aircraft missiles worth another $1.8 billion.
Meanwhile, a senior Russian arms official last week said unrest in Libya had cost Russia $4 billion in weapon sales to the region. (Writing by Alissa de Carbonnel; Editing by Sophie Hares)