OTTAWA, November 30 (Reuters) - Canada is ready to legislate an end to a rail workers strike that began this weekend because it fears the stoppage will put a fragile economic recovery at risk, a senior government official said on Sunday.

The official, who asked not to be identified, said the government was worried that the strike by locomotive engineers at Canadian National Railway could harm the economy just as it is emerging from recession.

The government has already urged both sides to agree to binding arbitration to end the dispute.

''If there is not an agreement by tomorrow, we are prepared to introduce back-to-work legislation,'' said the official.

The 1,700 engineers -- out of a Canadian CN workforce of some 15,000 -- have been without a contract since Dec. 31, 2008. CN unilaterally imposed new work conditions last Monday, saying it was the only way to break a deadlock.

The engineers, represented by the Teamsters Union, began their strike at midnight on Friday after talks broke down. CN said it would use management and non-union staff to keep trains running on a cross-Canada network that is used heavily by grain shippers and other other exporters of raw materials.

The dispute does not affect CN engineers in the United States, who work under different contracts, or Canadian commuter and inter-city rail services, which use CN tracks.

The last strike at CN began in February 2007 when 2,800 conductors and yard-service employees walked off the job. It ended two months later after the federal government passed back-to-work legislation, citing the importance of the rail service to the economy.

Under the conditions imposed by the company, engineers will get pay increases of 1.5 percent. But their monthly mileage cap will rise to 4,300 miles (6,900 km) from 3,800 miles (6,100 km), matching that of the railway's train conductors.

The mileage caps are designed to keep train crews from being overworked. CN says the 3,800-mile-limit was set decades ago, in an era of steam locomotives, and a higher limit would improve productivity.

The union on Sunday offered to accept binding arbitration on the pay portion of its dispute. CN rejected the offer, which it said would not end the strike.