Maine Gov. Paul LePage, who ignited a storm of protest by removing a labor-themed mural from a state office building last month, is now facing demands from the U.S. Department of Labor to restore the artwork or repay the $60,000 federal grant used to create it.

In a letter to LePage on Monday and obtained by FoxNews.com, the department said the Republican governor violated the terms of federal laws governing money used to pay for most of the mural's price tag when he removed it over concerns about the message it sent.

Gay Gilbert, administrator of the U.S. Labor Department's office of unemployment insurance, said LePage would have to return the money to the unemployment trust fund states use to pay jobless benefits. The federal government manages the funds, which are financed through unemployment insurance taxes that employers pay. 

Under federal law, states have limited discretion on how to spend that money, which includes paying for furnishing public employment offices.

About 63 percent of the mural's cost came from money in Maine's account in the federal unemployment trust fund. Gilbert's letter said the state would have to return 63 percent of the fair market value of the mural to that account.

"Alternatively, the state could again display the mural in its headquarters or in another state employment security building," the letter reads.

U.S. Labor Secretary Hilda Solis hasn't weighed in on the mural dispute yet.

The governor's office declined to comment and deferred inquiries to the state's Labor Department.

"We have reviewed the letter and are assessing what it may mean for the agency moving forward," said Adam Fisher, a spokesman for the Maine Labor Department, where the mural once hanged.

LePage, who took office in January, has come under fierce criticism from union supporters and even members of his own party for removing the 36-foot mural. LePage said he did it to stay consistent with the department's pro-business goals. He also renamed the departmental conference rooms that formerly carried the names of labor organizers, including Cesar Chavez.

Union supporters have accused LePage of picking a fight with the state's working class. Several hundred people reportedly attended a rally in the State House on Monday demanding the return of the labor mural to the state Labor Department headquarters.

Eight state Republican wrote an opinion article published in several Maine newspapers criticizing the governor's tone as he carries out these actions that they said was serving as a distraction to important issues.

The Republicans said LePage's removal of the mural was debatable. But, they added, LePage's saying he would "laugh at the idiots" if they engaged in civil disobedience over the mural's removal "is another personal attack that only serves to further lower the bar of our public discourse."

Erected in 2008 during Democratic Gov. John Baldacci's term, the mural depicted scenes that include a paper mill workers' strike, a shoe mill, women shipbuilders at Bath Iron Works and former U.S. Labor Secretary Frances Perkins, a native of Maine.

The mural is now in storage and awaiting transfer to another venue, LePage spokeswoman Adrienne Bennett told FoxNews.com

The battle over LePage's removal of the mural is likely a precursor to an upcoming fight over union rights as the state tries to close a projected $837 billion shortfall for the fiscal year ending in June.