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Terrell Owens has given the Allen Wranglers an ultimatum — issue a public apology and cut him a check for the more than $ 160k he claims they owe him … or he’ll take them to court … a source close to the football star tells TMZ.

As TMZ first reported, Owens has been considering filing a lawsuit against his former Indoor Football League employers ever since they 86′d him last week. Owens claims they breached his contract when they cut him loose for allegedly skipping a children’s hospital visit.

According to our sources, T.O. and his legal team fired off a letter on Friday to Wranglers owner Jon Frankel. We’re told T.O. wants a public retraction regarding the team’s allegations that T.O. missed the event on purpose — because T.O. claims the team privately acknowledged a team publicist mixed up the dates.

As for the money … our sources say T.O. claims he is owed $ 160,000 (or 4 game checks) the team still has not paid him. T.O. also claims the team owes him 50% of merchandise, tickets and concessions from his time with the team.

We’re told if the apology and the money don’t come by Tuesday, T.O.’s next step will be to sue.