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UPDATE 1-Bank Austria says to cut up to 850 jobs in Austria

* UniCredit unit cites rising costs of bank levy, regulation

* Says aims to avoid forced layoffs

* Targets back-office posts (Adds quotes and background)

VIENNA, Nov 28 (Reuters) - UniCredit Bank Austria will cut up to 850 jobs in Austria as part of a plan to slash 130 million euros ($176 million) in administrative costs, it said on Thursday, blaming rising state burdens in a saturated market.

Austria's bank levy delivers a 97 million euro annual hit and additional costs from new regulatory requirements add up to another 270 million a year, it said, prompting it to chop overall spending and cut staff costs by 70 million euros.

"One can clearly see that the bank levy is at the expense of jobs," Chief Executive Willibald Cernko said in a statement, adding the only other options would be to pass costs on to customers or restrict lending.

Bank Austria said it aimed to achieve the targets without forced layoffs by not filling vacant positions and by adopting part-time working models. Back-office units will take the brunt of the cuts that will reduce staff in Austria to around 9,000.

It intended to spend 100 million euros over the next two to three years to redesign the bank into a basic services part - offering deposits, withdrawals, loans and transfers - and an advisory services part using specialist staff.

"The bank is thereby preparing for intensifying competition from new competitors such as Amazon or Google, which are entering the banking market with different business models and leaner structures," it said.

Rival Raiffeisen Bank International has also launched a drive to save 450 million euros and cap costs in 2016 at the level of 2012. It has not specified how many jobs will go.

($1 = 0.7367 euros) (Reporting by Michael Shields)