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UPDATE 1-Japan Tobacco to buy UK e-cigarette brand E-Lites

(Adds background on company, market)

LONDON, June 11 (Reuters) - Japan Tobacco Inc has agreed to buy the maker of E-Lites, a leading brand of e-cigarettes in Britain, giving it entry into the fast-growing market for tobacco alternatives.

Japan Tobacco said on Wednesday that it had agreed to buy all outstanding shares of E-Lites' parent company Zandera, founded in 2009.

Financial terms were not disclosed, though the company said it would fund the purchase with existing cash and debt. It said the deal is expected to have a minor effect on its performance and cash flow in fiscal 2014.

As rates of smoking decline, big tobacco companies such as Philip Morris International, British American Tobacco and Imperial Tobacco Group have been jostling for position in the growing market for electronic cigarettes, which use nicotine-laced liquid.

Some analysts believe e-cigarettes will eventually outsell traditional cigarettes in some markets.

Japan Tobacco, the maker of Winston, Camel and Mild Seven, already sells outside the United States a smoking device called Ploom that heats, but does not burn, pods of tobacco. E-Lites, one of the leading brands in the UK, is the company's first tobacco alternative.

E-Lites' parent had revenue of about 16 million pounds ($26.87 million) in the fiscal year ended March 2014.

($1 = 0.5956 British Pounds)

(Reporting by Martinne Geller in London; Editing by Jason Neely and Pravin Char)