UPDATE 1-Ingersoll-Rand to spin off security division

* To buy back $2 bln of shares

* Increases quarterly dividend to 21 cents per share

* Spinoff expected to complete within 12 months

* Expect one-time separation costs of $150-$250 mln

* Shares up 3 pct

(Adds details, share movement)

Dec 10 (Reuters) - Diversified manufacturer Ingersoll-Rand Plc said it will spin off its security division and buy back $2 billion of shares, yielding to pressure from activist investor Nelson Peltz.

The company, known for its heating and cooling systems, also raised its quarterly dividend to 21 cents per share.

Shares of the company, which has a market value of about $15 billion, were up 3 percent before the bell. They closed at $48.69 on the New York Stock Exchange on Friday.

The spinoff, buyback and dividend hike is part of a strategic review undertaken by Ingersoll after Peltz's Trian Fund Management LP acquired a 7 percent stake and proposed a breakup of the company.

Reuters reported on Sunday that Ingersoll would spin off its security technology division, which makes mechanical and electronic locks as well as steel doors, citing two people familiar with the matter.

"We believe the spin-off, which is the result of an in-depth review of strategic alternatives by our board and management, will allow both companies to enhance value by allocating capital and deploying resources," Chief Executive Michael Lamach said in a statement.

The spun-off security company, whose portfolio includes brands such as Schlage, CISA, Kryptonite and Falcon, is expected to have revenue of about $2 billion.

Ingersoll said it expects to complete the tax-free divestiture within the next 12 months but did not give further details on how it would structure the spinoff.

The leadership of the new security company will be announced prior to the completion of the spin-off.

(Reporting by Mridhula Raghavan in Bangalore; Editing by Supriya Kurane)