UPDATE 1-Norway's wealth fund should be split from central bank -reform proposal

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OSLO, June 23 (Reuters) - Norway's $960-billion wealth fund, the world's largest, should be split off from the country's central bank, which has managed the fund since its launch in 1996, a government-appointed commission said on Friday.

Norwegians have built up the fund with revenues from the country's vast offshore oil and gas sector and it is regarded as an insurance policy for when those reserves run out, meaning any changes will be subject to close political and public scrutiny.

In the future, the fund should be managed by a new state investment company with a government-appointed board and an investment mandate set by the finance ministry, the commission said.

"Both central banking and investment management place greater demands on the board, senior management and the organisation than earlier," said commission head Svein Gjedrem, himself a former governor of Norges Bank.

"Moreover, the activities differ in nature, and the scope of the tasks involved is substantial. With two separate entities, the professional competence and the governing bodies can more easily be tailored to the task at hand," he added.

The recommendations will be closely examined by Norwegian politicians, who had said ahead of the publication they were waiting for the report's conclusions before deciding what new assets, if any, the fund could invest in.

The fund, which is managed by a unit of the central bank, invests in bonds, stocks and real estate abroad, but is seeking to add new higher-yielding investments such as unlisted equity or infrastructure. (Reporting by Joachim Dagenborg and Ole Petter Skonnord, editing by Terje Solsvik and Toby Chopra)