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* Transition pact not yet in the bag, EU negotiator warns

* EU will publish draft withdrawal treaty on Wednesday

* Tone sharpening as May prepares key speech on Friday(Adds further comments, Fox, Johnson, Scots, Welshdevelopments)

By Gabriela Baczynska and Jan Strupczewski

BRUSSELS, Feb 27 (Reuters) - EU negotiator Michel Barnieraccused the British government on Tuesday of clinging to"illusion" while time runs out for a Brexit deal to avoidmassive disruption when Britain leaves the European Union nextyear.

Speaking after briefing ministers from the other 27 EUstates and ahead of publication on Wednesday of a first draft ofa withdrawal treaty that officials say will cross many Britishred lines, Barnier returned to a familiar mantra that had becomemuted after an interim deal with London two months ago.

"The clock is ticking. I am worried by the time, which isshort," he told reporters, referring to an October target foragreeing a treaty, including a transition period, in time for itto be ratified before Brexit in March 2019.

With British politics still in turmoil over Brexit, amammoth project rejected by nearly half the country in a 2016referendum, there has been a sharpening of tone on both sides.

British officials accuse Brussels of eschewing creativesolutions to avoid trade disruption, while EU leaders complainthat Prime Minister Theresa May's divided government is failingto make its intentions clear.

Asked about a comment by the EU summit chair last week thatideas for a future trade pact being floated ahead of a key Mayspeech on Friday were "pure illusion", Barnier said he agreedwith Donald Tusk. "It is illusory to imagine we will acceptcherry-picking," he said of the idea that Britain could maintainEU regulations in some sectors, while diverging in others.

Barnier also renewed his warning that a status quo forbusiness for a couple of years after Brexit could not yet betaken for granted, given outstanding differences. And warning ofa lack of progress in other areas of the talks, he said he wasready to meet his British counterpart David Davis urgently.

Both sides had hoped an interim accord in December on howmuch Britain would pay Brussels and how expatriate citizens'rights would be protected would lead to a quick agreement bynext month on a transition period, during which Britain wouldremain bound by EU rules, giving businesses time to adjust.

However, May has pushed back on some EU proposals, such asrights for EU citizens arriving to live in Britain during thetransition and mechanisms to hold London to EU law, while Londonis also seeking some flexibility up-front in the EU's proposalto complete its separation at the end of 2020.

Barnier spoke of "significant points of disagreement" on thetransition, and suggested Britain was trying to keep itopen-ended. EU governments are keen that it does not become along-term arrangement, though most are willing to considerextending it into 2021 if a future trade deal takes longer totake effect.

May's spokesman played down the differences.

"During a negotiation you would not expect both sides toimmediately agree on everything. What's absolutely clear is thatboth the UK and the EU agree that an implementation period isbeneficial and we're working to reach agreement in March," hesaid.

WITHDRAWAL DRAFT

Among controversial elements of the draft withdrawal treatyto be agreed by the executive European Commission on Wednesdayare clauses on the enforcement of its terms for years to come bythe EU court and on preventing "regulatory divergence" acrossthe Irish border.

British Brexit campaigners have already spoken out againstwhat they expect the EU text to say. British officials stressthat the text will reflect only an EU negotiating gambit in somecases, although other passages will translate into legal termsthe agreements reached by both sides two months ago.

Foreign Secretary Boris Johnson dismissed the EU's plan tohold Britain to judgments in the European Court of Justice, though EU officials say they have yet to hear aclear alternative from London on how to settle disputes.

British officials are also uneasy about the EU writing intothe draft that London will maintain regulations in NorthernIreland to avoid diverging from EU rules in the Irish Republicand so avoid a "hard border" that could disrupt the peace. EUofficials acknowledge that Britain has said there may be otherways to avoid border friction -- but has yet to offer details.

Brussels is awaiting May's proposals for a future traderelationship on Friday. EU leaders plan to approve a negotiatingmandate for Barnier on those trade talks when they next meet inBrussels on March 22-23. The aim would be to agree a broad"political declaration" on the future to accompany thewithdrawal treaty and to have a trade pact ready for 2021.

May has ruled out remaining in the EU single market orcustoms union. Her Labour opponent Jeremy Corbyn outlined a planon Monday to stay in a customs union, opening up a gap betweenthe two big parties on Brexit that raised questions on whetherMay can pass her Brexit legislation, given her narrow majority.

May's trade minister, Brexit campaigner Liam Fox, dismissedthe Labour proposal as a "sell-out" as it would bind Britain tomany EU rules while preventing it striking its own trade deals.

Adding to doubts about how Britain will implement Brexit,the Scottish government confirmed plans for its own legislationon the withdrawal, a plan to be emulated in Wales.(Additional reporting by Phillip Blenkinsop and SamanthaKoester in Brussels, Elisabeth O'Leary in Edinburgh and WilliamJames and Andrew MacAskill in LondonWriting by Alastair Macdonald @macdonaldrtrEditing by Gareth Jones)