By Karen Pierog

(Reuters) - Michigan said on Friday it will begin a preliminary review of cash-strapped Detroit's finances in a process that could lead to a state takeover of the city.

"While we have long hoped the mayor and city council would agree on a viable recovery plan, given the mayor's description of the city's financial condition and the prospect the city may run out of cash in mere months, it has become clear that a preliminary financial review is not only warranted but necessary," said Michigan's State Treasurer Andy Dillon, in a statement.

Republican Governor Rick Snyder had hoped the city would request a preliminary review, the first step in a process that could lead to his appointment of an emergency manager to oversee Detroit. But Mayor Dave Bing and members of the city council made it clear at a Thursday press conference that state intervention was not wanted.

"Detroit needs to be run by Detroiters. We know what needs to be done and stand ready to do it," Bing said on Thursday.

Without the city's request, the governor relied on a new state law that beefed up emergency manager powers to launch the review.

The state cited several conditions that triggered the review, including the fact that Detroit's credit ratings had fallen into the junk category.

It also cited discretion by the state treasurer, who in turn pointed to the inability of elected officials to reach a solution to fiscal problems, as well as recurring operating deficits and the likelihood Detroit will run out of cash in the spring.

(Reporting by Karen Pierog; Editing by James Dalgleish)