UPDATE 1-Appeals court upholds controversial Wisconsin union law

* 7th Circuit upholds entire law, which limited union powers

* Law sparked failed effort to recall Wisconsin governor

Jan 18 (Reuters) - A federal appeals court on Friday upheld a controversial Wisconsin law that restricts the power of public-sector unions, the passage of which sparked an ultimately failed effort to recall the state's Republican governor Scott Walker.

In upholding the law in its entirety, the 7th U.S. Circuit Court of Appeals in Chicago reversed part of a March 2012 ruling by U.S. District Judge William Conley in Madison, Wisconsin.

The 7th Circuit said Conley correctly upheld the statute's limits on collective bargaining. It also reversed his decision to void requirements that required annual union certification votes, and which made payments of union dues voluntary.

Seven of Wisconsin's largest public-sector unions had challenged the law, known as Act 10. Lawyers for those unions did not immediately respond to requests for comment.

"It is my hope that this decision will pave the way for resolving any remaining challenges in a manner that supports the legislative decisions made by our elected officials," Wisconsin Attorney General J.B. Van Hollen said in a statement.

Wisconsin's Republican-led legislature had adopted the law in sessions designed to address the state's budget deficit.

The law also forced most state workers to pay more for health insurance and pensions, and curbed pay raises.

Its passage sparked nationwide protests and efforts to remove Walker from office. He survived a recall election last June.

The case is Wisconsin Education Association Council et al v. Walker et al, 7th U.S. Circuit Court of Appeals, Nos. 12-1854, 12-2011 and 12-2058.